Where the foreclosures are

        California     230,915        172

        Florida         119,220        137

        Arizona         49,119        185

        Nevada          41,296        370

        Illinois            38,996          74

       

        Michigan      33,184          74

        Ohio            31,595          62

        Georgia        28,608          72

        Texas          25,259          27

        Virginia        14,725          45

The figures in the second column tell an interesting story. They show foreclosure rates at about what you might expect in states with high recessionary unemployment, and they are in line with the national rate (or well below, in the case of Texas, where March unemployment was 6.7%, well below the national average of 8.5%). But the foreclosure rates are much, much higher in the so-called Sand States, the states at the top of the list.

What do these states have in common? First of all, high population growth through most of this decade, if not in the entire state than in major metropolitan areas—the Inland Empire and the Central Valley in California, the I-4 corridor in Florida, metro Phoenix in Arizona, metro Las Vegas in Nevada. This stimulated a demand for housing and rapidly rising house prices that rose to huge bubble dimensions, then crashed when the local economy began to falter (as gaming receipts did in Las Vegas in 2007, for example). Second, large numbers of Hispanic immigrants. Lending institutions had incentives under our laws to lend to minorities, and they had a ready market to offload those mortgages in Fannie Mae and Freddie Mac. Third, local economies that became overdependent on construction and real estate, so that when the bubble burst there was not much to fall back on. I have seen estimates that something like one-quarter of the metro Phoenix economy was in construction and real estate.

All of this tells us that the foreclosure problem is more a local one than a national one. It was caused by the peculiarities of local economies and demographies which, combined with the effects of government regulation, had powerful effects here but very limited effects elsewhere.

The foreclosure problem elsewhere is the typical problem you encounter in a recession: when people get laid off, they have a harder time paying off their mortgages. There are policy arguments for some kind of amerliorative laws to staunch the pain.

But in the Sand States the problem is different. Housing prices in Phoenix, for example, roughly doubled between 2004 and 2007 and now are back to 2004 levels. Can we, or should we want to, pump them up to 2007 levels again? The answer to both questions, it seems to me, is no. So we will just have to deal with the problem created by the fact that these mortgages were commingled into mortgage-backed securities with those from other areas which are much less likely to result in foreclosures.

It seems to me it should be possible to put metrics on this, to indicate what percentage of mortgages in any mortgage-backed securities are from the Sand States (or from the relevant zip codes threrein). These are obviously riskier than other mortgages, whatever the economic condition of the state. Not many mortgage holders in Michigan are under water, because the state never had much of a housing bubble and not many homeowners there entered into mortgages in the last couple of years (though some may have refinanced).

In contrast, in the Sand States, lots of people are under water, and they will continue to be under water for some period of time until housing prices reach 2007 levels (which may take a decade or a generation, for all we know). We should be able to put labels on mortgage-backed securities that tell financial people more than they know now. Here’s a link to a proposal to put “more granular data online.” This shouldn’t be outside the realm of possibility—and may help financial institution put intelligent values on securities they’re afraid to price right now.