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Ongoing research at the University of Alabama at Birmingham (UAB) is forecasting a steady, higher than traditional rate of mortgage foreclosures in the state with the housing market struggles unlikely to bottom out and begin a recovery for at least another year.

February 19, 2009

• Statewide foreclosures reviewed

• State still at high risk

BIRMINGHAM, Ala. - Ongoing research at the University of Alabama at Birmingham (UAB) is forecasting a steady, higher than traditional rate of mortgage foreclosures in the state with the housing market struggles unlikely to bottom out and begin a recovery for at least another year. UAB Assistant Professor of Finance Stephanie Rauterkus, who also is a visiting scholar for the Federal Reserve Bank of Atlanta, is in her sixth month of research on the neighborhood effects of foreclosure in Alabama.

"When you look at the existing mortgages in the state, there are still thousands of adjustable rate and other historically troublesome mortgages on the books that are soon scheduled to reset into higher monthly payments for home owners," Rauterkus said. "So many of the same kinds of loans that led to current foreclosures levels are still out there, and thousands more homeowners are at risk of facing payments they cannot afford."

The troublesome mortgages Rauterkus points to include those with balloon payments, adjustable rates and other special clauses. She said they are troublesome because they historically result in default. In her trend analysis modeling of 60 percent of Alabama mortgages, or more than 400,000 home loans, Rauterkus has found that nearly 10 percent reflect the characteristics of loans that historically result in default.

"I don't forecast a significant spike adding to the already high foreclosure rate moving forward, but because so many current loans are concerning, I think we're likely to stay at this elevated rate of foreclosure for at least another year," Rauterkus said.

Rauterkus points to trends in the state mortgage delinquencies to back up her claims of a protracted Alabama housing market slump. She said the current state trends in mortgage delinquencies exceed the national average in all categories, which include payments that are 30, 60 and 90 days late. In Alabama, 3.2 percent of loans are 90 days or more delinquent compared to just 2.51 percent of loans nationwide. So while Alabama's current mortgage foreclosure rate is half the national average of 1.65 percent, the higher number of delinquent Alabama loans means the state's foreclosure rate is likely to climb or remain steadily high in the coming months while the national rate of foreclosure begins to level off and drop.

"More and more people in the state are missing house payments," Rauterkus said. "So it is easy to see when tracking the data that the number of foreclosures in the state will remain unusually high until these troubled loans are resolved."

Rauterkus said the time to a housing market bottom could be accelerated if a percentage of the state's so called troublesome loans are refinanced into fixed-rate mortgages, because market stability will be evasive so long as nearly 10 percent of the state's home owners continue to face upwardly adjusting interest rates in the coming months.

"Removing these historically bad loans from the market is the best way to slow the foreclosure rate, and I see refinancing as a powerful tool to reach that goal," Rauterkus said.

UAB Research Tracks Alabama Foreclosures Showing Higher Rates to Remain Steady