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Busted After the Boom

Washington-area foreclosures jump 45 percent from July to August.

It seemed like the perfect time to buy. Interest rates were low. Home appreciation was eclipsing 20 percent a year. People fell over backwards trying to get into the market.

But now hundreds of people caught up in the housing craze of the past several years are getting pushed out of the American Dream as fast as they pushed in.

As of Monday, there were 49 foreclosures listed in Fairfax County, second most among counties in Virginia, according to Foreclosure.com. Prince William had the most with 53, and Loudoun had the third most with 37. Arlington County had just 3 foreclosures listed.

Experts fear it’s a trend on the rise. “Many borrowers were unaware of the risks of the non-traditional mortgages or exotic mortgages,” said Allen Fishbein, director of housing with the Consumer Federation of America. “They’re finding their payments exploding and an inability to handle those payments.”

It’s a road that often leads to default and then foreclosure, according to Fishbein. “One out of eight non-traditional loans may go into default,” he said. “I still think we’re only seeing the beginning of what will be a much bigger problem,” said Fishbein.

WHEN THE MARKET was booming, few people in real estate worried about foreclosures. Doors to homeownership opened wide thanks to affordable loans with low adjustable interest rates or introductory rates.

Since homes were increasing in value and flying off the market, people who got into unaffordable situations could either refinance or resell.

But now homeowners who find they’ve bought overpriced homes are seeing those options vanish because of slowing sales, a growing housing supply and stagnant home values.

“I’m seeing a lot of people now coming into my office who are facing foreclosure or are headed in that direction,” said Edward Gonzalez, an attorney who specializes in bankruptcy law. He added that many homeowners are feeling the pinch of having to dish out much more for their mortgage trapped by a cooling market and rising mortgage rates.

Alfred King, a spokesman with Fannie Mae, one of the largest lenders, said the national figures that track foreclosures are remaining low. “The trend for foreclosures usually lags what’s happening immediately in the market,” said King.

But RealtyTrack of Irvine, Calif., reported recently that foreclosures in the United States jumped nearly 50 percent from August to August. In Virginia, they increased 37 percent during the same time period.

THE RATE OF foreclosures are likely to rise when the country’s $130 billion in mortgage payments are reset in January. These adjustable rate mortgages could result in more “payment shock” for homeowners, according to Fishbein.

Local experts agree that the area is better situated to handle dips in the market compared to other regions, pointing to the strong economy.

Still, in a month’s time, from July to August, foreclosures in the region climbed 45 percent, according to RealtyTrac. “The extremely low unemployment rate in the Washington metro area appears to be an effective antidote to foreclosures,” James J. Saccacio, chief executive officer of RealtyTrac, said in a statement. “However, this month’s rise in foreclosure activity is not surprising given that the area’s home price appreciation slowed significantly in the first and second quarters. That slowing appreciation, combined with rising interest rates, makes it harder for homeowners and investors to avoid default or foreclosure.”