I don’t usually write about foreclosures or rates of foreclosure. But I want to address the article that topped the business section of this mornings “Arizona Daily Star“. For those who haven’t read my post in the past at Tucson Real Estate in The News or for those needing a refresher lets look at some of the tools we use for digging into the content of an article.
What is the Topic?
- Residential Real Estate
- Commercial Real Estate
- Single Family Residential etc.
The topic of Foreclosures
Is this Local or National.
“NEW YORK — In a bad omen for sellers and lenders this spring home-selling season, the erosion of house values is accelerating and foreclosure filings are doubling, new data showed Tuesday.”
Is it State or Local.
“AZ 3rd-highest in foreclosures”
Is there a local angle.
“Tucson ranked 54th, with one filing for every 224 households. The area’s 1,864 filings were up 14.5 percent from the prior quarter and 90 percent from first-quarter 2007.”
Now lets look at the overall details of the article
Rates of Foreclosures and the number of foreclosures continues to climb. Arizona is the third highest on the list with 27,404
Phoenix has 23,135 of the 27,404 in the state. Tucson has 1,884 leaving the rest of the state with 2,385.
Next it begins to mix the data in an apples to oranges approach to statistics. It compares the number of households to the number of foreclosures. This is not a valid comparison. Why? Because households are not foreclosed upon, neither are homes. They aren’t? I thought they were.
Loans, specifically in this instance Mortgage loans are foreclosed upon.
In the old days they were the same thing. You bought a house with a mortgage loan, when the loan was foreclosed upon it was the same as foreclosing on the house. But things changed a few years back. Why?
Because in the past if you didn’t have 20% down for the purchase of the home you had to purchase “Private Mortgage Insurance” (PMI). If you defaulted on your mortgage then the investor who holds the mortgage would be paid. You were purchasing this insurance for the investor not you. PMI does nothing to prevent you from loosing your home.
Along came the “Second Mortgage”. If you didn’t have 20% down and didn’t want to pay PMI you could get a second mortgage to cover the 20% you didn’t have. (That’s right many people didn’t have anything to put down let alone 20%)
With two mortgages you avoided having to have PMI. The second mortgage always cost more and had a higher rate of interest. However, now you had TWO loans on ONE house. Remember the loans are what are foreclosed upon not the house.
But that’s not all in some states Home Owners Associations can foreclose on a property if the home owner is behind of payments. Two of the states that have this provision for HOA foreclosures are California and Nevada.
Guess what California and Nevada are number 1 and number 2 in foreclosure rates. In those states a single property can have THREE foreclosures at the same time.
None of this information is provided in the article. It is made to appear as one foreclosure = one house.
Now we have filled in another piece of this puzzle and “Bad Omen”.
Since the majority, I would say 99% of the homes in foreclosure had 1st and 2nd mortgages the actual number of homes being foreclosed upon in Tucson would be 942. But wait there is more (as they say in the commercials).
Not all of these homes are in foreclosure because if a home owner has missed a payment or has been late with a payment they will be sent a “Notice of Foreclosure Proceedings” on EACH LOAN. You guessed it. These numbers are not based on actual foreclosures, but on foreclosure notices.
I can’t say how many of these are in that category, but I would venture a guess of 1/3 to 1/2.
Feeling better yet? Is there a “Bad Omen” yes, but it isn’t for the home sellers. They are not competing with foreclosure properties for the sale of their home. Statistically that number is so low it isn’t even a blip. The Bad Omen is for those that made these terrible loans in the first place. They hold both loans. Their numbers are these numbers.
Finally, when looking back historically at home foreclosure rates the reporting is still comparing apples to oranges, since it is house for house reporting, it is single mortgage properties of the past compared to multiple mortgage properties of the recent past (yes, in some cases there were THREE mortgages, go figure).
When it comes to the reporting of bad news there are always ways to magnify reporting.
What you really need to be worried about are the Giant Man Eating Hybiscus invading Tucson.

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