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Tracking the ups and downs of housing

A sign announcing a reduced price of $695,000 hangs in front of a home for sale.

TEXT OF INTERVIEW

Tess Vigeland: This Labor Day week brought with it a fresh start in school for most of the nation's kids. Wall Street seemed inspired by the idea that the dog days of summer are over. But in the housing market there is no letup in the dreariness.

This week the folks at RealtyTrac released their foreclosure numbers for August. One in every 357 homes is in some stage of being lost to the bank. RealtyTrac's monthly report is a must-have for anyone following the housing market. But even they never imagined a day where foreclosures would be dinner table conversation.

The company's main business is actually listing foreclosed properties on its Web site. At their headquarters in Irvine, Calif., call center workers field questions all day long from people who want to buy those homes.

Call center worker: 80209 is the zip code you said? OK, so 80209 and then, you want 20 properties. So let's say the inventory only includes 10 properties.

I sat down with RealtyTrac CEO Jim Saccacio and VP Rick Sharga. I first asked Jim how they go about counting all these foreclosures.

Jim Saccacio: We have an independent army so to speak.

Vigeland: So it's not governments or...

Saccacio: No real estate agents, no government agencies to provide it. This is all out of public record. After a first legal notice has been filed, we go out there and do it the old fashioned way and really collect the documents and review the documents and then input the documents into our system.

Vigeland: Rick?

Rick Sharga: Nobody else has the same breadth of coverage that we have in the database. And it is a tedious, almost unbelievably arcane process, where almost none of the counties in the country have this information online or even electronically filed. So in most cases, you're pulling paper files and recompiling it online. It's amazing.

Vigeland: Jim, why did you all think or see that this was going to be a need?

Saccacio: I can't say we had that much advance knowledge of that or foresight into that. When I got here at the beginning of 2001, less than 1 percent of all first and second mortgages were in foreclosure. I think today it's somewhere more around 4 percent.

My prior bankground was in the banking business. It was not uncommon for people to call me up and say, "Hey, I'd like to buy an REO, a bank-owned property. Can you get me the list?" And I would say, "That's the furthest thing from what I do. No, I can't get you the list." So the concept of having this information, I always knew in the back of my mind that people wanted that.

Vigeland: Then Rick, you had here at RealtyTrac a pulse on the foreclosure issue, I would guess ahead of what a lot of people knew.

Sharga: We really started running a report on U.S. foreclosures back in 2004.

Vigeland: So that would've been actually at the height of the housing boom.

Sharga: We were right in the midst of the housing boom. The reason we started the report, which comes out monthly, is so could credentialize ourselves as a reliable and reputable provider of foreclosure information. And we've been doing this for a full year when the market shifted gears and suddenly foreclosures became kind of a household word.

Vigeland: When did you start getting an inkling that there might be problems coming down the pike.

Sharga: January 2006. It was really when we saw the higher levels of foreclosures, higher levels of properties that entered foreclosure actually going back to the banks. We did see this coming, but I'd be lying to you if we were to say we saw it coming to the degree or the volume that it hit.

Vigeland: There has been talk of waves of foreclosures, different kinds of foreclosures. Is that something that you have tracked through the numbers?

Sharga: This has been a very unusual cycle. Normally you could track a foreclosure cycle pretty reliably. You'd see an economic downturn, followed by job loss, followed by foreclosures. When this foreclosure wave started, unemployment was at historically low rates, interest was at historically low rates and the economy was growing at 4 percent. So what started this one was what turned out to be unsustainable home prices, coupled with really bad lending practices. That led to an economic downturn, which has now led to the second wave of foreclosures, which are really unemployment related.

Unemployment numbers if they peak end of this year, first quarter of next year will drive foreclosure activity at least through the middle of next year. At which point there's another wave of bad loans that are option ARMs, they all start to reset about half way through next year. So we're in back-to-back-to-back waves of residential foreclosures, really for the first time in history. And it probably won't be back down to normal numbers, of both inventory and activity, until probably after 2012.

Vigeland: Wow. I guess it just seems like this is one company -- there's been so much horrible news out of this crisis -- but this one company where, boy, it was serendipitous to start tracking this stuff in 2005. Jim?

Saccacio: In the early days, when prices were rapidly rising, people were being boxed out in the market; not everyone could buy a home. So they were chasing the incline in the market. Conversely now, the market is going down and people are looking for information to education themselves as to what's available and when do I reach the bottom of a market, where I should jump in and buy. So what we found is is that this information has weathered good times in real estate and bad times in real estate. It has value.

Vigeland: Rick?

Sharga: I think what's changed dramatically and maybe permanently in the real estate market, is I don't think we'll have another generation of home buyers anytime soon that doesn't at least consider a foreclosure or a bank property when they're out on the market. And that simply wasn't true a few years ago.

Vigeland: Yeah, that is a big change. Well Rick Sharga and Jim Saccacio thank you both for your time today. Appreciate it.

Sharga: Thank you very much.

Saccacio: Thanks again.

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