Foreclosure Trends in Washington

1. Foreclosure Trends in Washington Craig Nolte, Regional Manager Community Development Federal Reserve Bank of San Francisco

2. Foreclosure Trends in Washington • Foreclosure data • Housing prices • Employment growth • Impact of Subprime ARMs

3. Foreclosure Trends in Washington

4. Current Foreclosure Patterns • Foreclosures, particularly in the subprime market, have been increasing across the country • In Washington, foreclosure rates had been declining since the 2001 recession, but rose slightly in the fourth quarter of 2006 • Still, Washington’s rates are lower than national and regional averages • Hotspots appear to be in soft real estate areas (Ohio) and in some high investor markets (Florida, Las Vegas)

5. Foreclosures initiated as a percentage of loans, through fourth quarter 2006 Source: Mortgage Bankers Association, National Delinquency Survey

6. Foreclosure rates in Washington are below national and regional rates Foreclosures initiated as a percent of loans, fourth quarter 2006 Source: Mortgage Bankers Association, National Delinquency Survey

7. Why has Washington been insulated from broad foreclosure trends? • Although national house values have softened, the Washington housing market continues to be strong

8. Washington’s housing market continues to grow Home Price Index, through first quarter 2007 Source: Office of Federal Housing Enterprise Oversight

9. Why has Washington been insulated from broad foreclosure trends? • Although national house values have softened, the Washington housing market has continues to be strong • Washington has seen relatively strong job growth

10. Washington employment growth faster than national average Total non-farm employment, indexed to January 2000 employment levels Source: Bureau of Labor Statistics

11. What are areas of concern? • The use of adjustable-rate mortgage (ARMs) products has risen, both nationally and in Washington • Upcoming rate resets: from just June to October of this year, more than $100 billion of loans are scheduled to reset nationally-- $1 trillion in next 5 years • ARMs, particularly those in the subprime loan category, are associated with heightened foreclosure risk

12. Subprime ARMs make up a small but increasing share of the conventional market in Washington Conventional product market share, through fourth quarter 2006 Source: Mortgage Bankers Association, National Delinquency Survey

13. Subprime ARM foreclosure rates have always trended above those for prime products But rates have risen markedly in the US recently, and after years of decline, have started to rise in Washington Foreclosures initiated as a percent of loans, through fourth quarter 2006 Source: Mortgage Bankers Association, National Delinquency Survey

14. Subprime ARMS now account for nearly half of conventional loans entering foreclosure… …even though subprime ARMS make up less than 10 percent of the market Share of foreclosures in Washington stemming from subprime ARMs, through fourth quarter 2006 Source: Mortgage Bankers Association, National Delinquency Survey

15. Conclusion • Washington has been relatively insulated from the recent increase in foreclosures • High house price appreciation in recent years means that most distressed borrowers can still sell or refinance their homes • However, the growing proportion of subprime ARMs and impending rate resets may signal problems ahead • Reaching these borrowers now may help to mitigate the costs of foreclosures, not only for the homeowners but also for lenders and municipal governments • This could reduce risk of widespread losses seen in other markets

16. Federal Reserve Bank of San Francisco • Community Investments Magazine • Research • Center for Community Development Investments • Initiatives • Regulations, resources • Events calendar

17. Foreclosure Trends in Washington Craig Nolte, Regional Manager Community Development Federal Reserve Bank of San Francisco (206) 343-3761 Craig.nolte@sf.frb.org