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Foreclosures in the Nation's Capital 2009

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Document date: October 28, 2009
Released online: October 28, 2009

The text below is an excerpt from the complete document. Read the full brief with references in PDF format.

Abstract

This brief, a companion to the Housing in the Nation's Capital 2009 report, describes the impact of the foreclosure crisis on the Washington metropolitan region, examining the level and trends of foreclosures, outlining potential secondary effects for families and neighborhoods, and looking towards the future of the region's housing market. It concludes with policy implications in four areas: foreclosure prevention, neighborhood stabilization, recovery assistance for displaced households, and services for children in foreclosed homes.


Introduction

Housing in the Washington, D.C. metropolitan area might not be in freefall, but it’s proving to be a hard ride down from the top of the bubble. In just seven years, starting in mid-2000, the median price of existing single-family homes in the Washington, D.C. region shot up an incredible 106 percent. Since the summer of 2007, prices have fallen by about 30 percent in real terms. Foreclosures skyrocketed more than eightfold. The unprecedented growth in foreclosures was initially dominated by riskier subprime loans, but the problem is now spreading rapidly into the prime market as the economy worsens. Although the housing market shows early signs of bottoming out, the foreclosure crisis will continue to have widespread effects on households and neighborhoods throughout the Washington region. And foreclosures are likely to have a disproportionate impact on the many minority families and communities that had gained—and are now losing—a new foothold on the American dream during the boom.

How big is the foreclosure problem?

According to data published by RealtyTrac, 13.7 of every 1,000 Washington, D.C. metropolitan area housing units were listed in a foreclosure filing during the first half of 2009, which slightly exceeded the national average of 11.9 and ranked 55th out of 203 metropolitan areas. Las Vegas topped the list with about 74.5 filings per 1,000 units—more than five times the Washington area rate.

Foreclosures began to rise rapidly in our region in spring 2007. Loan performance data collected from major loan servicers enable tracking of the region’s “foreclosure inventory,” or the cumulative number of mortgages that have entered foreclosure but have not yet been remedied, paid off by a sale of the property, or had the title transferred to the lender. From January 2007 to June 2009, the number of loans in foreclosure increased eightfold from only 4,000 to 33,600 out of 1.2 million loans. As of June 2009, about 2.7 percent of all mortgages in the Washington region were in the foreclosure inventory, comparable to the national rate of 2.9 percent.

Subprime loans are most likely to be in default; about 12 percent of them in June 2009 had begun the foreclosure process (Figure 1). These risky loans drove the initial surge in the region’s foreclosures and are still disproportionately represented in the foreclosure inventory. Subprime loans accounted for about 11 percent of all mortgages in the region, but about half the mortgages in foreclosure.

Prime loans make up another third of the loans in foreclosure. While the prime loan foreclosure rate was still low at 1.2 percent, the number of these loans in foreclosure began to accelerate in fall 2008. Another 5,800 loans, or 17 percent of the inventory, were Alt-A, which have a foreclosure rate (7.2 percent) between prime and subprime loans. The remaining 1.7 percent of the foreclosure inventory were government-backed loans, such as those insured through the Federal Housing Administration (FHA). With fewer than 600 loans in foreclosure in June 2009, these loans consistently have the lowest foreclosure rate—only 0.5 percent. Even though they were created to serve households with financial profiles similar to subprime borrowers, the government required full income documentation, and its guarantee enabled FHA lenders to offer loans with low fixed rates and much more affordable payments than subprime loans.

(End of excerpt. The full brief with references is available in PDF format.)

Read Housing in the Nation's Capital 2009 report



Topics/Tags: | Children and Youth | Cities and Neighborhoods | Housing | Race/Ethnicity/Gender


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