US Foreclosure Filings Up 68 Pct in Nov.

U.S. homeowners increasingly failed to keep up with their home loan payments in November, as the number of foreclosure filings surged 68 percent nationwide compared with the same month a year ago, according to a mortgage research company.

In all, 201,950 foreclosure filings were reported last month, compared with 120,334 in November 2006, Irvine-based RealtyTrac Inc. said Wednesday.

Last month's filings fell 10 percent from October's 224,451.

The last time there was a sequential drop in foreclosure filings was between August and September, when they fell 8 percent.


"It's a little bit of good news in the otherwise murky real estate market right now," said Rick Sharga, RealtyTrac's vice president of marketing. "The fact that we're seeing a 10 percent decrease is significant. It's a good thing."

The U.S. had one foreclosure filing for every 617 households in November, RealtyTrac said.

The filings include default notices, auction sale notices and bank repossessions. Some properties might have received more than one notice if the owners have multiple mortgages.

Forty-three states saw an increase in foreclosure filings over last year.

The decline in filings from October to November likely corresponds with a lull in adjustable-rate mortgage resets, Sharga said.

Such loans typically have a low introductory interest rate, then reset sharply higher after a set period. The number of borrowers who took on adjustable-rate mortgages offering a teaser rate for just two or three years rose sharply in the last couple of years of the housing boom, particularly in high-priced states such as California.

But many borrowers have been unable to afford the increased payments that come with the resets, and falling housing prices have made it harder to refinance or sell.

A flood of rate resets for such loans has helped drive up the number of home loan defaults in the last few months.

"We'll see another fairly big spike in (foreclosure) filings in early '08," Sharga said. "Then there's another group of loans that's due to reset in May and June, so we'll see another wave of defaults probably in the fall."

Experts estimate some 2 million adjustable-rate mortgages are due to reset at higher rates in the next seven months.

Nevada, Florida and Ohio had the highest foreclosure filing rates in the country last month, RealtyTrac said.

Nevada reported one foreclosure filing for every 152 households, earning the state the highest rate in the nation for the 11th month in a row. The state had 6,694 filings in November, up 1 percent from October and up 167 percent from November 2006.

Florida had one foreclosure filing for every 282 households. The state reported 29,238 filings last month, down more 3 percent from October, but up 212 percent from November last year.

Ohio reported one foreclosure filing for every 307 households. The state had 16,308 filings last month, down nearly 6 percent from October and nearly double the number from November 2006.

California had 39,992 foreclosure filings last month, up 108 percent from a year earlier and the most in the nation. Its foreclosure rate was one filing for every 325 households.

The state's filings fell 21 percent from October's total.

Rounding out the states with the top 10 foreclosure filing rates in November were Colorado, Michigan, Georgia, Arizona, Indiana and Illinois.

In Reversal, Fed Approves Plan to Curb Risky Lending

The Federal Reserve, acknowledging that home mortgage lenders aggressively sold deceptive loans to borrowers who had little chance of repaying them, proposed a broad set of restrictions Tuesday on exotic mortgages and high-cost loans for people with weak credit.

Press Release on the Mortgage Plan (federalreserve.gov)The new rules would force mortgage companies to show that customers can realistically afford their mortgages. They would also require lenders to disclose the hidden sales fees often rolled into interest payments, and they would prohibit certain types of advertising.

Borrowers would be able to sue their lenders if they violated the new rules, though home buyers would be allowed to seek only a limited amount in compensation.

“Unfair and deceptive acts and practices hurt not just borrowers and their families,” said Ben S. Bernanke, chairman of the Federal Reserve, “but entire communities, and, indeed, the economy as a whole.”

The new regulations, expected to be approved in close to their proposed form after a three-month period for public comment, amount to a sharp reversal from the Fed’s longstanding reluctance to rein in dubious lending practices before the subprime market collapsed this summer.

The proposed changes, which do not apply to standard mortgages for borrowers with good credit, stopped short of banning all heavily criticized practices in subprime lending and did not go as far as many consumer groups had sought. But they won praise as worthwhile steps from some industry critics who had long complained that the Federal Reserve under its former chairman, Alan Greenspan, persistently ignored signs of trouble.

“Reading these proposals today is almost painful,” said Dean Baker, co-director of the Center for Economic Policy Research, a liberal research group in Washington. “These are all just simple, common sense regulation. Why couldn’t Greenspan have done this seven years ago?”

If the measures had been in place earlier, they would have applied to as many as 30 percent of all mortgages made in 2006.

Some advocacy groups that had warned for years about reckless practices said the Fed’s move was too little and too late.

“The Federal Reserve’s proposed guidance is riddled with loopholes and exceptions that will undermine its effectiveness,” said Deborah Goldstein, executive vice president of the Center for Responsible Lending, a nonprofit group in Durham, N.C. “The proposals fall far short of what was needed, and in some ways fall short of where the industry was already headed.”

The new rules would do nothing to help the hundreds of thousands of people who are either already defaulting on subprime mortgages or are likely to lose their homes when their introductory teaser rates expire and their monthly payments jump by 30 percent or more.

Soaring default rates among subprime borrowers have already caused a crisis on Wall Street, all but shutting down the subprime mortgage market since August because lenders could no longer raise the cash to make new loans. The Bush administration has pushed for voluntary agreements aimed at avoiding some, but far from all, of the foreclosures expected next year.

The American Banking Association praised the Fed’s action as “an important proposal that would make a significant difference in protecting mortgage borrowers.” But the industry group warned that some provisions might go too far. “We worry that replacing important lending flexibility with rigid formulas might also limit lending to some creditworthy borrowers.”

In Congress, leading Democratic lawmakers said the Fed had been too cautious.

Representative Barney Frank of Massachusetts, chairman of the House Financial Services Committee, said the central bank showed it was "not a strong advocate for consumers." Senator Christopher J. Dodd of Connecticut, chairman of the Senate Banking Committee, called the proposal a "step backward."

The House recently passed a bill last month that would impose even tougher restrictions on many subprime practices that the Fed addressed on Tuesday. The Senate has not acted on a bill, but Mr. Dodd recently introduced a measure with many of the same goals as the House bill.

Despite their limitations, the central bank’s new proposals would nonetheless cut a wide swath across the nation’s fragmented mortgage system. They would govern practices for all mortgage lenders, regardless of whether they are banks, thrift institutions or independent mortgage companies. And they would apply regardless of whether a lender is supervised by federal or state regulators.

The most important indicator that the Fed wanted to throw down the gauntlet is in how it defined the mortgages that would be subject to special consumer protection.

Under its existing rules, based on the Home Ownership Equity Protection Act of 1994, the Fed’s extra protections applied to less than 1 percent of all mortgages — those with interest rates at least eight percentage points above prevailing rates on Treasury securities.

Press Release on the Mortgage Plan (federalreserve.gov)The new rules, by contrast, invoked broader legal authority to apply to any mortgage with an interest rate three percentage points or more above Treasury rates. Fed officials said that would cover all subprime loans, which accounted for about 25 percent of all mortgages last year, as well as many exotic mortgages — known in the industry as “Alt-A” loans — made to people with relatively good credit scores.

Under the new rules, such borrowers would have to document their incomes, supply tax returns, earnings statements, bank records or other evidence. Lenders would not be allowed to qualify a person based only on their ability to pay the initial teaser rate.

The proposal would essentially end the practice of allowing those with poor credit to apply for “stated income” loans, often known as “liar’s loans,” which do not require borrowers to provide evidence of their incomes and assets. And it would restrict mortgages with future monthly payments beyond those that could be justified by a borrower’s projected earnings.

The Fed proposal would still leave some room for flexibility. Lenders would have to provide “reasonably reliable evidence” of a person’s income, a definition that Fed officials said would allow small business owners and others whose income may be erratic or difficult to confirm to arrange a subprime mortgage.

The Fed also refused to prohibit the much-criticized subprime lending practice of big prepayment penalties. Prepayment penalties, which can cost thousands of dollars, often block people from switching to a cheaper mortgage for two years or longer.

Mortgage lenders argue that prepayment penalties are often essential, because they provide investors with assurance of earning more than just the low teaser rates. But consumer groups have argued that the penalties can trap borrowers in expensive loans and that many home buyers do not properly understand them.

Under the Fed proposal, lenders would still be allowed to demand prepayment penalties, but the penalties would have to expire at least 60 days before a loan’s introductory rate was scheduled to reset at a higher level.

The new rules would also make it more difficult for lenders to include hidden sales fees, which are usually paid to the mortgage broker. Many subprime lenders tell borrowers they will not have to pay any fees, or even any costs for services like appraisals, but include those fees in what is called a “yield-spread premium” on the interest rate.

The Fed proposal would not prohibit yield-spread premiums but would require that a lender disclose the exact amount of the fees and have the borrower agree to the fees in writing.

John Taylor, president of the National Community Reinvestment Coalition, a housing advocacy group, said simply disclosing the fees was not enough because home buyers were already inundated with a blizzard of disclosure forms to sign and can easily miss the significance of what they are approving.

Borrowers “shouldn’t need to be a lawyer or financial expert,” Mr. Taylor said, “to protect themselves from unfair and deceptive lending.”