Florida Mortgage Defaults Pile Up Across Manatee, Sarasota Housing Markets

Foreclosures in Manatee, Sarasota and Charlotte counties have doubled in the last year, and some experts think they will likely double again before the region and nation sort out the current Florida mortgage loan morass.

The rate of foreclosure in Florida was double the national average in February, according to data provided to the Herald-Tribune by RealtyTrac, a California-based online marketer of foreclosed property.

The total foreclosures in process - 2,221 this year, compared with 1,106 at this time in 2006 - is the clearest symptom to date of the Southwest Florida housing market painful hangover from the bubbly days of a heady housing market.

The phenomenon is being driven by a number of factors, but most prominently in this region by investors who got in over their heads during the boom of 2004-05, by first-time home buyers who likely did not have the financial wherewithal or credit to make a home purchase, and by people caught in the collapse of some area builders.

Florida is “ground zero” for the credit crisis –RealtyTrac’s statistics show the state with the highest number of foreclosures nationally at 19,144 - and Southwest Florida is no exception, says Mark Zandi, chief economist for big Wall Street credit rating giant Moodys.com.

He points to the “effective failures” of some of the region’s financial institutions - most notably Coast Bank of Bradenton, which aggressively loaned to speculative home buyers during the boom and is now struggling with Florida home loans to customers of a failed St. Petersburg home builder.

Zandi said more small banks are likely to have similar problems. He is convinced that things are going to get worse before they get better, particularly with the rate of foreclosures in Southwest Florida.

“I would not be surprised to see it double again a year from now.”

Zandi’s “ground zero” description might be more apt than he knows.

There is a blast radius of foreclosures - nearly a third of the region’s total - in an area within a 10-mile radius of the Sarasota-Charlotte county line, a Herald-Tribune analysis shows.

There are hot zones around Sarasota, Bradenton and northern Manatee County, but none so pronounced: Of the 2,221 foreclosures in process right now in the three-county region, 317 are in North Port and 402 are in Port Charlotte.

Not coincidentally, those communities were a favored playing ground during the boom for investors, with housing that was cheap enough to manage for someone looking to make a quick buy and equally quick exit during the real estate run-up.

It also was the center of activity for a series of failed home builders, including Construction Compliance of St. Petersburg and Sarasota’s Jade Homes and Avalon Homes. There are other builders doing business in North Port-Port Charlotte showing visible signs of trouble.

But foreclosures are a regional problem. During February, one out of every 406 Sarasota County homes had entered some stage, while in Manatee, it was one of every 523, and in Charlotte, one of every 694.

The region is better off than Florida as a whole, which has a rate of one for every 382 homes, but compares poorly to the national figure of one for every 884 homes.

The rise in Southwest Florida’s foreclosure rate does not appear to be an aberration.

While the 2007 rate is double that of last year, it also is 82 percent higher than 2005. The increases are statistically large because they started from a low base, but foreclosures locally and nationally are building as subprime lending buyers are driven from the market.

As the three-year-long real estate boom wound down, Florida mortgage lenders such as New Century Financial Corp. came up with a bad idea: Instead of tightening lending criteria as the markets became less liquid, they loosened them in order to keep the party rolling.

It did, at least for a time.

As late as 2006, many subprime lenders were making loans with little or no cash-down requirements to credit-challenged borrowers. Those decisions are now coming home to roost across the nation.

“Not only are we going to see massive foreclosures in the market, but as you can see, the subprime lenders are falling out like flies,” said Priscilla Gratton, a 20-year Sarasota mortgage banking veteran who recently left AmSouth to open her own shop, the Gratton Mortgage Group, in downtown Sarasota.

“There are so many mortgage originators out there whose only goal was closing a transaction.”

Too often, businesses making loans inflated incomes, fudged application data or simply did not tell customers the truth about the real costs, over time, of the Florida home loans they were being sold.

Particularly popular was the adjustable-rate mortgage, or ARM, which allowed some marginal buyers to get into a home for a couple of years before the rates reset, many times to unsustainable levels.

In the last six months, more than two-dozen subprime lenders have shut their doors. The biggest player, New Century, filed for bankruptcy protection from its creditors last week. It issued $51.6 billion worth of subprime mortgages last year, second only to HSBC.

During the past 10 years, New Century underwrote as many as 4,000 loans locally, property records show.

Some portion of those and other subprime defaults could eventually wind up among already bloated real estate inventories.

“It appears that as subprime and FHA loans default at higher than anticipated rates, and lenders tighten their underwriting standards, we’re going to continue to see a spike in the number of homeowners facing foreclosure,” said James J. Saccacio, RealtyTrac’s chief executive.

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