Florida’s Inflated Market and Foreclosure

Posted in Foreclosure, August 31st, 2006 |

After three years of rapidly inflating real estate, loose credit and easy-to-own financing, the number of court filings for foreclosure in Florida’s popular Palm Beach County is on the rise. Martin County’s pre-foreclosure filings are at their highest level since February 2005, and in St. Lucie County 113 pre-foreclosure notices were filed between Jan. 1 and March 23.

But in Palm Beach County, there has been a 34 percent hike in the rate of foreclosure from October, when the increase began. Experts seem to think this is a trend, and not a coincidence, citing too many people taking out bad loans to capitalize on the general sense that there was a growing real estate market, which in many cases is just a result of the inflated Florida market.

The types of troubled properties are of all kinds, from a $1.3 million loan on a home assessed at $590,000, to a church with a six-figure balloon payment, to a modest home equity loan with a hefty price tag: 12.2 percent. For comparison, the average 30-year fixed-rate mortgage was 6.32 percent this week.

Of those Martin and Palm Beach county filings that identify the kind of home loan, roughly half are some form of adjustable-rate mortgage, or ARM.

Federal banking regulators ranging from the Federal Deposit Insurance Corp. to the U.S. Office of the Comptroller of Currency have said that certain ARMs have been used to get people to buy expensive homes they could not otherwise afford. Some of those high-risk buyers have either counted on more income or selling the property to another buyer for more money before a higher rate kicked in.

But as the housing market has cooled and prices have come down, would-be re-sellers are finding themselves stuck with those homes, and even homeowners who planned to stay put are finding themselves trapped with their adjustable-rate mortgages â€” just as rates are rising.

-John Grady