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Cities in California, Florida and Nevada accounted for the 10 highest foreclosure rates in the third quarter among metro areas with a population of 200,000 or more, according to RealtyTrac, an online marketplace for foreclosure properties, and its Q3 Metropolitan Foreclosure Market Report.

However, half of those 10 metro areas reported decreasing foreclosure activity since the third quarter of last year. Many of the cities included in the report's Top 50 list of foreclosure rates reported sharp increases in foreclosure activity.

"Rising unemployment and a new variety of mortgage resets continued to gradually shift the nation's foreclosure epicenters in the third quarter away from the hot spots of the last two years and toward some metro areas that had avoided the brunt of the first foreclosure wave," James J. Saccacio, RealtyTrac's CEO, said of the report's findings. "While toxic subprime mortgages drove much of that first wave of foreclosures, high unemployment and exotic Alt-A [and] option ARMs are spreading the foreclosure flood to more metro areas in 2009."

Option ARMs offered borrowers low initial interest rates – sometimes as low as 1%. After two, three or five years, those rates "reset" to a higher interest rate creating a higher monthly payment for homeowners. Alt-A loans typically were given to consumers who didn't submit all the documentation needed to qualify for a straight loan. People who have unsteady sources of income or too little documented income to qualify for a straight home loan usually choose this loan.

Among the top 50 metro foreclosure rates, the three biggest year-over-year increases were in Boise City-Nampa, Idaho, and Provo-Orem and Salt Lake City in Utah. In several states the largest increases were posted in cities not previously a focal point for foreclosure activity, according to the report. The Chico metro area posted the biggest year-over-year increase in California, with foreclosure activity up 98% from the third quarter of 2008. The medium-sized city approximately 100 miles north of Sacramento had a 12.8% unemployment rate in August.

A similar trend was seen in cities like Reno-Sparks, Nev., with an 80% year-over-year increase in foreclosure activity; Prescott, Ariz., with a 77% increase; Jacksonville, Fla., with a 64% increase; Rockford, Ill., with a 64% increase; and Lansing-East Lansing, Mich., with a 41% increase.

Las Vegas posted the nation's highest metro foreclosure rate, with 5.13% (one in 20) of its housing units receiving a foreclosure filing during the quarter. The rate is nearly seven times the national average. A total of 40,408 Las Vegas properties received a foreclosure filing during the quarter, an increase of nearly 9% from the previous quarter and an increase of nearly 54% from the third quarter of 2008.

Despite a 13% decrease in foreclosure activity from the previous quarter, Merced, Calif., posted the nation's second highest foreclosure rate, with 3.72% (one in 27) of its housing units receiving a foreclosure filing during the third quarter. A total of 3,092 Merced properties received a foreclosure filing during the quarter, down 11% from the third quarter of 2008.

Foreclosure activity in the Cape Coral-Fort Myers metro area in Florida also decreased from the previous quarter and from the third quarter of 2008, but the metro area still registered the nation's third highest metro foreclosure rate with 3.67% (one in 27) of its housing units receiving a foreclosure filing during the quarter. A total of 13,206 Cape Coral-Fort Myers properties received a foreclosure filing during the quarter, a decrease of 5% from the previous quarter and down 2% from the third quarter of 2008.

Other metro areas in the top 10 were the California cities of Stockton (3.53%), Modesto (3.39%), Riverside-San Bernardino (3.37%), Bakersfield (2.88%), and Vallejo-Fairfield (2.85%), along with the Reno-Sparks metro area in Nevada (2.67%) and the Florida metro areas of Port St. Lucie (2.63%) and Orlando-Kissimmee (2.57%).

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