Foreclosures, Defaulted Mortgage Loans Shoot Up 42 Percent in 2006

The nationwide foreclosure rate increased dramatically in December.

But that was nothing compared to 2006 as a whole.

The number of homes in the country foreclosed by mortgage lenders rose 42 percent in 2006 from a year earlier in a sign that many homeowners have became overextended in mortgage debt.

More than 1.2 million foreclosure filings were reported nationwide during 2006, which is a rate of one foreclosure filing for every 92 households, according to RealtyTrac, Inc.

The increase in foreclosures last year signifies a return to normal levels as the housing market cools from multiyear highs of sales and appreciation.

Recent homeowners who believed the housing market would continue its break-neck pace or used flexible mortgages to make a purchase may be feeling a sting, the company said.

The ARM issue: As much as $1.5 trillion in adjustable-rate mortgages are due to have their rates reset this year. Many recent homeowners are already struggling to make those higher payments and are drifting toward loan default and foreclosure, said James Saccacio, chief executive officer of RealtyTrac.

“As more and more of these [home loans] re-set, we saw a surge to finish the year, with the fourth quarter producing more foreclosure filings than any of the three previous quarters,” Saccacio said.

While the increase in foreclosures could add to a glut in housing stock, “most local markets have been able to re-absorb foreclosure homes without seeing any major damage to the local economy,” Saccacio said.

Colorado, Georgia and the Nevada housing markets saw the highest foreclosure rates.