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subprime mortgage NEW YORK (Reuters) – Los Angeles home foreclosures fell sharply in October from September as a new California law came into effect, while the number of foreclosures in Miami continued to grow at a slower rate, real estate research website PropertyShark.com said on Tuesday.

The number of newly scheduled auctions on foreclosed properties in Los Angeles county fell 51 percent, the greatest monthly decline in two years.

The law, passed on July 8, requires lenders to contact homeowners and explore options to avoid foreclosure before initiating the process. Some sections of the law became effective on Sept 8.

Its implementation accounted for most of the decline, to 2,389, in the number of newly scheduled auctions foreclosures in Los Angeles County, said PropertyShark.com Chief Executive Bill Staniford.

By comparison, such auctions fell only about 1 percent to 4,863 between August and September.

However, the law requires only a 30-day waiting period before the lender files the foreclosure notice, which means the closure of that period might result in a reversal of this month’s dip, Staniford said.

“We could see this snap right back,” he said.

Foreclosures are at the heart of the slump afflicting the U.S. housing sector, its worst since the Great Depression. The boom that peaked in 2006, fueled by a wave of lending to risky subprime borrowers, was followed by a bust as those borrowers began to default on their mortgages.

Foreclosures force supply up and prices down, setting off a vicious cycle in which a growing number of otherwise creditworthy homeowners default as well because they are “underwater” on their mortgages, or owe more than their homes are worth.

Metropolitan areas such as Los Angeles and Miami, where subprime lending and the accompanying overbuilding was most common, saw the highest price spikes, the steepest declines and the sharpest surges in foreclosures.

But in localities where prices have dropped more precipitously, as in Los Angeles, the rate of increase in foreclosures is slowing.

“Buyers will be there at the right price,” Staniford said.

October’s foreclosures in Los Angeles are still up year over year, but only 10.9 percent versus an increase of 338 percent to 2,155 between October 2007 and October 2006.

In Miami, however, foreclosures increased 34.9 percent to 861 from October of 2007. Between September and October, foreclosures in the city rose 93.5 percent.

Some good news…

Home Sales, Factory Orders Up in July
Friday August 24, 4:40 pm ET
By Jeannine Aversa, AP Economics Writer
Positive Commerce Department Reports Suggest Economy Was Stable Before Credit Crunch Worsened

WASHINGTON (AP) — New-home sales turned up and factory orders soared in July, suggesting the economy was on stable footing before a credit crunch took a turn for the worse.

The Commerce Department reported Friday that sales of new homes rose 2.8 percent to a seasonally adjusted annual rate of 870,000 units. The increase came after a 4 percent drop in June.

Another report from the department showed that orders placed with factories for big-ticket goods jumped 5.9 percent in July, the most in 10 months.

The latest batch of economic news was better than analysts had expected. They were forecasting home sales to fall and calling for a much smaller, 1 percent gain in factory orders.

On Wall Street, the reports cheered investors who have been consumed by worry in recent weeks about the country’s financial health amid spreading credit troubles. The Dow Jones industrials vaulted 142.99 points to close at 13,378.87.

The housing report showing the July sales boost comes as credit standards have been tightening on home mortgages. Credit problems took a turn for the worse in August, making it even harder for some buyers to get financing. That means home sales in the coming months will likely show renewed weakness, economists said.

“Sales in August will face significant headwinds from further tightening in credit conditions, reduced availability of mortgage credit as many lenders shuttered their doors and upward pressure on mortgage rates, especially for non-conforming jumbo loans” of more than $417,000, predicted Brian Bethune, economist at Global Insight.

By region, sales in the West shot up 22.4 percent in July and increased 0.6 percent in the South. Sales, however, tumbled 24.3 percent in the Northeast and were down 0.9 percent in the Midwest.

The improvement in overall sales didn’t change the big picture of the housing market, which has been suffering through a deep slump for more than a year. Sales are down 10.2 percent from last year, and the weakness is expected drag on into next year.

To lure buyers, some builders are offering incentives including help with closing costs or lining up financing, and working with lenders to lower interest rates on loans, said Bernard Markstein, senior economist at the National Association of Home Builders. Some builders also are throwing in free upgrades to sweeten deals for buyers.

Home prices were mixed. The median price of a new home was $239,500 in July, up 0.6 percent from last year. The median price is the point where half sold for more and half sold for less. The average home price, however, dropped to $300,800 in July, down 3.4 percent from same month last year.

…

Fears that the painful housing slump and credit crunch could hurt the economy have gripped Wall Street investors in recent weeks, causing stocks to swing wildly.

Credit is the economy’s life blood. If it becomes too hard to get, spending and investment by people and businesses can stall, short-circuiting the economic growth.

“The downside risks to growth have increased appreciably,” Fed Chairman Ben Bernanke and his colleagues concluded on Aug. 17. It was a much more sober assessment than they had offered just 10 days earlier when they met to examine economic conditions and interest rates. Against this backdrop, the central bank sliced the rate it charges banks for loans, a narrowly tailored move aimed at propping up sagging financial markets.

If problems persist, the Fed could opt for more aggressive action: reducing an important interest rate, called the federal funds rate, on or before Sept. 18, the Fed’s next regularly scheduled meeting. The Fed hasn’t cut this rate in four years. It is the Fed’s main tool for influencing overall economic activity.

The funds rate, the interest banks charge each other on overnight loans, has stayed at 5.25 percent for more than a year. A rate cut would bring lower interest rates for millions of people and businesses.

New-home sales and durable goods reports: https://www.esa.doc.gov/ei.cfm

Los Angeles Foreclosures Fall by Half in October

Home Sales Up in July