Las Vegas tops foreclosure list
The Nevada area has seven of the top ten zip codes hardest hit by the housing meltdown.
NEW YORK (CNNMoney.com) -- The epicenter of foreclosures shifted to the booming city of Las Vegas at the end of 2007.
Seven of the top 100 worst-hit zip codes last December were in the gaming capital, according to statistics compiled for CNNMoney.com by RealtyTrac, the online marketer of foreclosure properties.
A year ago, old Midwestern industrial cities like Detroit and Cleveland dominated the foreclosure statistics amid factory closings and job losses. Now, otherwise prosperous Sun-Belt cities contain the zip codes worst hit by defaults.
"What we're seeing is the impact of subprime mortgages coming due," said Rick Sharga, a spokesman for RealtyTrac.
These loans, which were particularly prevalent in Las Vegas, default at much higher rates than traditional, fixed-rate mortgages.
Zip code 89031 in North Las Vegas had the most foreclosures on its books as of December, with a total of 741 filings -- default notices, auction notices and bank repossessions. The nearby zip 89131 was second on the list with 665 filings, and illustrates just how the face of foreclosure has changed.
Unlike depressed Midwestern cities, the 89131 area is prosperous, with strong employment and income levels well that are above average for the state. The foreclosure problems in Las Vegas stem from the unaffordable terms of the mortgages themselves, rather than from local economic conditions.
"It's the [lending] products," said Gail Burks, president of the Nevada Fair Housing Center, "the option adjustable-rate-mortgages (ARMs) and hybrids. They're having a huge impact."
These loans feature low introductory fixed rates that reset to much higher ones, usually after two years, and adjust every six months or so after that. When they first adjust, the monthly payment on a $300,000 mortgage can jump by $600 or more, turning a barely affordable mortgage into a totally unaffordable one.
Contributing to the problem in Las Vegas was a steep run-up in home prices. In 2004 alone, the median, single-family home price in the city grew by 47 percent, and that was followed by another 14 percent rise the next year. By 2006, the median home cost $317,400, nearly 50 percent higher than the national average.
That compelled many Las Vegas home buyers to use exotic ARMs to get the homes they wanted. Most intended to get a foot in the door, establish a good payment record for a couple of years, and then use their home's appreciation to refinance into an affordable fixed-rate loan.
But the numbers didn't pan out. "Prices in many Las Vegas communities have dropped tremendously," said Burks.
The latest home price survey from the National Association of Realtors, show a 7.1 percent 12-month decline in Las Vegas prices through September 30, and price drops there have certainly accelerated since then.
As a result, many borrowers can't afford the monthly payments on their ARM loans, and they can't borrow against the properties because they owe more on their mortgages than their homes are worth.
Most of the delinquency filings in Vegas are for payments 90 days or less late, an early and less serious stage in the foreclosure process. Many times, borrowers can emerge from this stage by making up missed payments and save their homes.
In contrast, Detroit's zip 48228 led the nation in bank repossessions, which is the final foreclosure stage, when the bank takes back the property. There 145 households lost their homes there.
In the Last Vegas zip code 89031, 88 homes were lost in December. But as the early defaults in Las Vegas work through the system, repossessions will spike.
Sharga pointed out that another part of the storm has yet to hit the nation in general and the Sun Belt in particular. There's a huge wave of hybrid ARMs coming up for resets this spring with more than $45 billion due in May alone, according to stats from Credit Suisse.