Foreclosures Rise, But CRE Loans Perform

The latest RealtyTrac report shows 635,159 foreclosure filings on 446,726 properties in the US during the third quarter, a rate of one foreclosure filing for every 196 US households. The Mortgage Bankers Association report shows that the state's commercial loan delinquency ratio stood at .04%, marking the 36th consecutive quarter in which the delinquency ratio remained below a half of a percentage point.

"August and September were the two highest monthly foreclosure filing totals we've seen since we began issuing our report in January 2005," says James J. Saccacio, chief executive officer of RealtyTrac. With foreclosures increasing in 45 out of 50 states in the third quarter, and given the number of loans due to reset through the middle of 2008, "We would expect foreclosure activity to remain high and even increase over the next year in many markets," Saccacio says.

Nevada posted the nation's highest foreclosure rate for the quarter, one filing for every 61 households, with California placing second at one filing for every 88 households. Other states in the top 10 for filings per household were Florida, Michigan, Ohio, Colorado, Arizona, Georgia, Indiana and Texas.

The Mortgage Bankers Association says that its latest report shows that the state's commercial real estate industry continued to perform at "exceptionally strong levels" in the third quarter. Of the nearly 11,000 loans surveyed, only five, totaling $36.2 million of a combined total loan servicing portfolio of $89.4 billion, were more than 30 days delinquent.

The five delinquencies included a land loan, two healthcare properties, one mini-storage and one office property. The .04% figure is a slight increase from the .03% delinquency rate in July, but a marked decrease from the .1% rate a year ago.

The reports from RealtyTrac and the mortgage bankers echo a sentiment expressed by Harvey Green, president and CEO of Marcus & Millichap, at an investor symposium this week and reported on GlobeS.com this morning. "The housing market is in turmoil, but the fundamentals for commercial real estate product types are very strong," Green commented.

Other developments this week further illustrate the disparity between the signle-family housing market's performance and that of the commercial real estate industry. Dallas-based Hudson & Marshall has scheduled an auction later this month of 600 foreclosed homes valued from $85,000 to more than $800,000 in cities throughout Northern California. Some 200 of the homes to be auctioned are in the San Francisco Bay area, which is historically one of the highest-priced and strongest housing markets in the US.

The housing auctions by Hudson & Marshall and others underscore the continuing fallout from the subprime lending industry, which led early this year to the Chapter 11 bankruptcy filing of one of the country's largest subprime lenders, Irvine-based New Century Financial Corp. The demise of New Century and other mortgage-related businesses has emptied huge blocks of space in Orange County, but the latest reports indicate that the county's office market is weathering the loss, albeit with higher vacancy rates and other ripples from the subprime woes.