Mortgage defaults rise again in Valley

The number of local homeowners who defaulted on their mortgages increased again in September, and real estate professionals say the trend - and its drag on home prices - will continue into next year.

September was the third month in a row in which default filings increased in the Treasure Valley. Foreclosures began against 469 homes, making three consecutive months that local foreclosure starts have exceeded 460. Defaults are the first step of the foreclosure process.

From January through September, 3,662 foreclosures have started in Ada and Canyon County, a 137 percent increase over the same period in 2007, according to Idaho Data Providers, which tracks all loans entering foreclosure in all Idaho counties.

"The filings during the first part of October are pointing toward another record month," said Charlie Nate, president of IDP. "In fact, I am projecting that locally we may see over 500 new foreclosures in October. That number was incomprehensible only one year ago when we were already well into this crisis and only experiencing just over 200 filings a month."

The credit crunch is catching up to developers and investors, too. Nate estimated that 30 percent of the defaults were on investor-owned properties.

"Lenders are beginning to foreclose on spec homes," said Lance Churchill, president of Frontline Cos., which specialize in buying homes in foreclosure. "It looks like the banks are finally losing their patience with the builders."

Ada County saw 262 notices of default filed in September - up 98 percent from September 2007, when 132 defaults were recorded. Canyon County's 207 September notices were up 207 percent from last September's 67.

"Unfortunately, this will suppress prices," said Scott Gray, a Realtor with Re/Max Capital City.

It can take four to six months for defaulted properties to reach the market, Gray said, so he thinks the number of unsold and foreclosed homes will continue to rise into next year - and that will affect anyone hoping to sell in an already soft market.

"Foreclosures will drag down the value of similar properties in an area, but you can put a value on curb appeal," he said. "A lot of these homes will be boarded up and the yard will be gone, so better-looking properties won't be affected as much."

Short sales, too, are increasing, and that has experts worried as well.

The 1,254 active short sales recorded Oct. 20th showed a 14.5 percent increase over the 1,095 reported on Sept. 8.

"We have now reached a point where the short sales are beginning to dictate the market price and, unfortunately, that is a falling market price overall," Nate said.

Short sales occur when delinquent homeowners have no equity at all or owe more money in mortgages than their homes are worth, and their lender agrees to accept less than the full amount outstanding on the mortgage.

These lower priced homes can pose a buying opportunity for some, but this isn't a great market for short-term investors who want to buy a home cheap and sell it quickly for a profit.

"It is a double edge sword," Churchill said. "There are so many of them that there are a lot of great opportunities if you want a home to live in.

"But flippers are having trouble because there are fewer buyers and it is much harder to fix a house up and sell it."

Brad Talbutt: 672-6737