EMPTY NESTS

The Southwest continues to lead the nation in preforeclosure and auction filings in the first quarter and Nevada is setting the pace, Sacramento, Calif.-based Foreclosures.com reported.

Nevada had about 10 filings for every 1,000 households, Colorado was second (5.9 filings) and California was fourth (4.3 filings), according to the Web site. The nationwide average is 2.4 filings per 1,000 households.

Clark County was second in the nation for preforeclosures with 6,601 filings, a 143 percent increase from 2,720 a year ago. Los Angeles County had the most filings with 9,354; Cook County, Ill., had 6,259 filings; Miami-Dade County, Fla., had 6,197 filings; and Riverside County, Calif., had 6,103 filings.

Some 364,000 U.S. home owners are facing foreclosure so far this year, casting a dark cloud over the American dream of homeownership, Foreclosures.com President Alexis McGee said.

"Unfortunately for those overextended homeowners, it's a cloud that isn't likely to lift anytime soon either, especially in light of the recent troubles in the subprime lending market," she said.

In the first quarter, there were 253,803 notices of pending foreclosure actions filed nationwide, up 22.5 percent from 205,128 filings in the previous quarter, Foreclosures.com reported.

That's in addition to tens of thousands of vacant properties that were lost to foreclosure during the three-month period. Those bank-owned real estate filings, or REOs, totaled 110,791 for the quarter.

"The housing market has definitely softened, but from the (foreclosure) numbers, you'd think we're in a precipitous fall in home values, but it's simply not the case," said David Stone, president of Nevada Association Services, a collection agency for homeowners associations.

While foreclosures are on the rise statewide, it appears as though a majority of them are due to subprime loans, he said.

Subprime loans are made to people with less-than-attractive credit. Those individuals face increases in their adjustable-rate loans or interest-only loans and are now unable to make the new payments.

Without renegotiating the loans, many homeowners face foreclosure.

"An objective observer may see the subprime market as a toilet bowl of fraud and manipulation," Stone said. "In other words, the lending market is taking advantage of needy people. What is not discussed is that for every subprime loan in default, you have 25 loans that remain current. The payments continue to be made by owners who own their home only because of creative financing, including the subprime market."

Some of the nation's larger subprime lenders have shut down or scaled back their operations.

New Century Financial stopped taking loan applications and subsequently filed for Chapter 11 bankruptcy. Fremont General is selling off its subprime lending unit, and Countrywide Home Loans pulled out of the subprime market.

"Subprime applications and the ability to fund subprime loans has definitely diminished over the last six months," said Chris Biaggi, president of All-Western Mortgage in Las Vegas. "We've been able to capitalize on other parts of the market, like the need for private lending. We've actually played a part in saving people from foreclosure by using private lending funds."

Robin Camacho of Direct Access Lending said home sales have been declining since 2004 and prices are continuing to trend downward in Las Vegas. Record-high foreclosures are only one factor causing sluggish sales, she said.

"Much of the slowdown can be attributed to panic selling, which floods the market with excess inventory," Camacho said. "Initially investors began selling off their properties, but now we see homeowners rushing to market to sell their personal residence, which they perceive may go down in value, or which they want to sell before their adjustable-rate mortgage adjusts."

Foreclosures and short sales -- homes purchased for less than what's owed on them -- have increased from 8 percent of resales at the start of the year to 11 percent of resales, she said.

Many troubled home owners would be better off refinancing into a fixed-rate mortgage while rates are still low and hold on to their home until prices begin to rise again, Camacho said.

"Prices will rise. The question is how soon," she said.

Reports about problems in the subprime mortgage sector are focusing only on part of the resulting repercussions to the housing industry, said Dennis Smith, president of Home Builders Research. The spotlight has been on the negative fallout to the housing market caused by foreclosed properties.

"Yes, foreclosures will increase inventory and lower prices. No one will doubt that fact," Smith said. "However, it will be temporary. There is plenty of demand for housing, and the foreclosed properties could offer ownership opportunities to many."

If banking officials really want to help people who've been priced out of the housing market, they should restrict the sale of foreclosed properties that might be classified as entry-level to allow only owner-occupants and not investors, Smith suggested.

RealtyTrac, another California-based foreclosure Web site, reported 430,000 U.S. foreclosure filings in the first quarter, a 35 percent increase from the previous quarter.

Again, Nevada had the highest foreclosure rate, with one filing for every 75 households, about 3.5 times the national average. The state's 11,514 foreclosure filings are up 66 percent from the previous quarter and more than double the first quarter of 2006.

"The rise in foreclosure activity was quite dramatic and widespread in the first quarter," RealtyTrac Chief Executive Officer James Saccacio said on Realtor.org. "Certainly the surge in subprime defaults has contributed to the overall rise."

Another consequence of the subprime quandary is changes in lending criteria, housing analyst Smith said. Lenders now require higher credit scores and loads of verification paperwork. They also take longer to process loans.

"This has obviously led to fewer buyers, which has frustrated builders and their sales staff," he said.

Combined with other factors that have changed the housing market, most notably higher inventory, the subprime fallout almost guarantees that home sales figures will be down this year and probably next year from levels of 2003 to 2006, Smith said.

Home Builders Research reported 7,494 existing home sales in the first quarter, down 31.3 percent from a year ago.

Camacho said the perception that it's difficult to finance a home right now may be keeping buyers from entering the market, which is contributing to the slowdown in sales.

While many subprime products have disappeared and lending guidelines across the board have become more stringent, buyers can still get 100 percent financing with decent credit or even weak credit if they have sufficient assets, she said.

Freddie Mac recently announced a $20 billion commitment to help subprime homeowners avoid foreclosure, so perhaps timid buyers will gain confidence and be drawn back to the housing market, Camacho said.