Foreclosure numbers don't add up

At a time when an explosion in the number of distressed mortgage loans has emerged as the most pressing economic issue in decades, there is no official government source for foreclosure statistics.

Private companies across the country tabulate statistics and produce estimates of national and local foreclosure trends. The best known among these is RealtyTrac. The California-based company, the source of the April statistics for Atlanta, has repeatedly faced questions about the accuracy of its data.

The lack of solid foreclosure information makes it difficult for policy makers to fashion solutions that make sense. Even now, Congress is debating dramatic changes to laws that govern mortgage lending without the benefit of detailed data about foreclosures.

The federal government does not collect that information. Neither does the state of Georgia.

"We know surprisingly little about this phenomenon, which is affecting virtually every community and every neighborhood," said Frank Alexander, a professor at Emory University's law school who is an expert in real estate law.

While foreclosure statistics from across the country are hard to get, details about what kinds of properties and owners are in default can be even more mysterious.

"It's a mess – and it's a mess for a variety of reasons," said Dan Immergluck, a Georgia Tech professor who is a nationally recognized expert on foreclosures.

Every state has its own legal system for foreclosures. In some states, it's a court process. In just over half the states, including Georgia, it's a 'non-judicial" process that operates outside the purview of a judge. In Georgia, lenders simply alert property owners that they are in default and then advertise their intent to sell the property at auction.

With the nation's foreclosure crisis looming on the horizon, RealtyTrac tried to fill the void by collecting local data across the nation and releasing frequent reports on the findings.

RealtyTrac reports national foreclosure statistics based on data from 2,200 of the nation's 3,141 counties. The company says the counties it surveys include 90 percent of the nation's population. It reports various types of foreclosure actions: notices of foreclosure sales and a tally of properties that have been repurchased by the lender through foreclosure.

Both federal and state governments have asked RealtyTrac for its data, said Daren Blomquist, a RealtyTrac spokesman.

"Most of the states aren't counting this themselves and the federal government doesn't have any way of counting them," he said.

"We're the closest it gets to having an official national source of foreclosure statistics."

The company is a go-to source for news media and policy makers at the state and national level because it provides numbers so many people are hungry for: monthly updates at the national, state and county levels.

But RealtyTrac has faced questions for months about the reliability of its numbers.

An AJC review of the company's data in 2007 prompted RealtyTrac to admit serious inaccuracies in Georgia. The company reported a 75 percent increase in foreclosures from June 2007 to July 2007, but later admitted errors and said the filings actually increased by 14 percent.

To assess RealtyTrac's current data, the AJC compared reports of foreclosure notices in five metro Atlanta counties to the company's tallies for those counties in April and May. Foreclosure notices published in legal ads for metro Atlanta's five core counties totalled 7,462 in April, while RealtyTrac reported 3,746 notices. In May, notices in five counties totalled 6,596, while RealtyTrac reported 3,447. The AJC calculated foreclosure notices by contacting the newspaper in each county that is the county-designated legal organ for such notices.

RealtyTrac reviewed the April data at the request of the AJC. The company's figures are lower than the number of notices, Blomquist said, because it excludes properties that have been the subject of foreclosure notices in the previous six months.

"For the purposes of our report it would be double-counting a property if we counted it again every time a new auction date was scheduled," said Blomquist.

Economists said the problem with such a system is the count doesn't accurately reflect the number of foreclosure sale notices – a lender's public announcement that intends to sell the property – that were actually issued in a particular month.

An expert on foreclosures described the company's approach as "not scientifically rigorous."

RealtyTrac also reports year-over-year changes for states without accounting for the fact that the number of counties it surveys may have changed.

In Georgia, for example, the company reported that April's foreclosure tally represented a 21 percent increase over the previous year. But the company made no adjustment for the fact that it collected foreclosure data in about 100 of Georgia's 159 counties last year but expanded to statewide coverage this year.

Blomquist, of RealtyTrac, said it isn't necessary to account for the additional counties because they are in rural areas with few foreclosures . "We don't believe it makes any significant difference in the percentage change," Blomquist said.

While Bloomquist believes in the accuracy of the company's numbers, he said it's a difficult process with many steps.

"When you just say 'foreclosures,' that can mean a lot of different things," he said.

RealtyTrac isn't the only source of foreclosure data, but it's one of the most visible, since it widely circulates its monthly reports. That attention helps drive traffic to the company Web site, which offers subscriptions to access detailed information on properties in foreclosure. Most major news media outlets have used the company's data over the years, as have state and federal government officials and academics.

The Mortgage Bankers Association publishes a quarterly report on delinquent mortgages that is respected by many economists. But the data drills down only to the state level. Other databases rely on credit records and property records.

The results vary widely from source to source. And no source provides the sort of detail that many experts say is desperately needed as foreclosure numbers continue to reach record highs.

Some economists believe it's time for the federal government to produce its own foreclosure statistics. And experts say many are kicking around ways to make that happen.

"Ideally we would have a national database of mortgage transactions," said Immergluck, the Georgia Tech professor.

At the very least, Immergluck said, the state of Georgia should devise a process to track foreclosure sale notices and completed auctions.

"There is a centralized system in the court system here that could be expanded to do that," Immergluck said. "Other states are talking about doing similar things."

Alexander, the Emory law professor, said it's important for policy makers to know how many foreclosure sales are scheduled as well as how many are actually completed. On top of that, he said, it's important to answer questions such as whether most properties involve an owner or tenant losing a house, or whether it's more common for a vacant, investor properties to be sold at public auction.

"The question is, 'Who is being hurt by the foreclosure process?' " Alexander said. "It becomes very difficult to fashion highly-focused changes in foreclosure law when we really don't know who is losing the property and why."