Coping with the national mortgage: meltdown and the collapse of the shadow banking system.

• Author: Rydstrom, Richard I.
• Position: Business & Finance

NATIONAL FORECLOSURES jump 93%. More than 154 U.S. lenders have "imploded." Recent figures for defaults and foreclosures are evidence of a serious threat to the American dream of home ownership for subprime and, now, prime borrowers. When RealtyTrac, the leading online marketplace for foreclosure properties, released its U.S. Foreclosure Market Report a few months back, it showed 179,599 foreclosure filings for July (including default and auction sale notices and bank repossessions). Those figures were up just nine percent from the previous month, but a whopping 93% from July 2006. That amounts to a national foreclosure rate of one filing for every 693 households.

"While 43 states experienced year-over-year increases in foreclosure activity, just five states--California, Florida, Michigan, Ohio, and Georgia--accounted for more than half of the nation's total foreclosure filings," notes James J. Saccacio, chief executive officer of RealtyTrac.

From May to June, the National Association of Realtors reported the worst sales figures since November 2002. "Jumbos" (loans over $417,000) are being overpriced or not available as the secondary market dries up. The lenders that have imploded include all types--prime, subprime, and a mix of both; retail and wholesale; subsidiaries; and entire companies. According to Implode-O-Meter, lender implosion means bankruptcy filing, temporary but open-ended halting of major operations, or a "fire sale" acquisition.

Nevada came in with the nation's highest state foreclosure rate for the seventh consecutive month in July, points out RealtyTrac. That is one foreclosure filing for every 199 households, or more than three times the national average. In second place, Georgia's foreclosure rate exploded from the eighth highest in June to second highest in July with a 75% increase. That is one foreclosure filing for every 299 households, or 2.3 times the national average. In third place, Michigan stepped up from the seventh position, at one foreclosure filing for every 320 households. That is a 39% jump, month-over-month, and a 130% year-over-year increase. California, Florida, Ohio, Colorado, Arizona, Massachusetts, and Indiana also were among the nation's 10 highest.

The top 10 cities included Detroit--which is seven times over the national foreclosure average--Las Vegas, Atlanta, and Greeley, Colo. The top 10 metropolitan areas all are located in California, and include Stockton, Merced, Modesto, Vallejo-Fairfield, Riverside-San Bernardino, and Sacramento.

The...