|Foreclosure figures overstate crisis|
The Atlanta Journal-Constitution
Published on: 10/14/07
A California company recently reported Georgia foreclosures had jumped by an alarming 75 percent from June to July, branding the state with the nation's second-highest foreclosure rate.
But there was one problem: The numbers were wrong.
RealtyTrac, one of the nation's leading sources of foreclosure statistics, reported 12,602 July foreclosure actions for Georgia. But that total counted more than 2,000 properties twice, and sometimes more, The Atlanta Journal-Constitution found in a review of the data.
There is little dispute that Georgia faces a foreclosure crisis, but the company's July report overstated the magnitude of the problem. After a preliminary investigation, the company said Friday that its data show foreclosure filings in July actually rose by 14 percent — not by 75 percent.
A RealtyTrac executive acknowledged the mistake in an interview Friday.
"What we're doing isn't perfect," said Rick Sharga, the company's vice president of marketing.
"It's the best we can do, and we keep trying to get better."
Sharga said the Irvine, Calif., company would correct the Georgia numbers and determine if a similar problem has skewed its statistics for other states.
Problems with RealtyTrac's statistics didn't begin or end with the July report. The Journal-Constitution also identified problems in the company's more recent Georgia data.
Last week, RealtyTrac reported 11,926 Georgia foreclosure actions for September. But the newspaper found that count included more than 2,200 duplicate entries.
Sharga said the problem appeared to be linked to its use of a new data provider.
"We don't minimize the responsibility of issuing these kind of statements," Sharga said. "We try and be as diligent as we can."
Economists and some state officials have questioned RealtyTrac's methodologies before. Even so, the small California marketer remains the national media's go-to source on foreclosure statistics. Even Congress, as it tries to quell the nation's mortgage meltdown, relies heavily on the data.
That's because no one else offers frequently updated foreclosure statistics that drill down to local areas.
"There are very few sources," said Israel Klein, spokesman for the Joint Economic Committee of the U.S. Congress.
RealtyTrac said it also provides data to the Federal Reserve, the Federal Deposit Insurance Corp. and the FBI.
At a time when mortgage failures top the public agenda, no one knows the precise scope of the problem.
No government agency collects nationwide foreclosure statistics. The Mortgage Bankers Association reports quarterly on delinquent mortgages and foreclosures, but its survey covers only 80 percent of mortgages and does not include a breakdown below the state level. Other organizations use credit files and lender surveys to produce estimates.
Some experts worry that the media and lawmakers rely too heavily on the company's data.
"Their numbers do overstate the level of activity, and it's affecting public policy," said Douglas Duncan, chief economist for the Mortgage Bankers Association.
Mark Zandi, chief economist at Moody's Economy.com, said the government should track foreclosures itself, because available data are "completely inadequate. ... It's impossible to make good policy if you don't have good data."
Zandi said lawmakers need more than simple foreclosure tallies; they need to know what types of loans and borrowers are failing.
RealtyTrac purports to capture more of the nation's foreclosure listings than any other source. That requires a massive data collection effort from thousands of courthouses and newspapers.
"It's a very difficult thing to do well and get right," Zandi said. "They are dealing with 50 different states, all with very different foreclosure processes."
A foreclosure is a process, not just a one-time event. Lenders in most states must take several steps before repossessing a home, usually including more than one public notice. Homeowners can avert foreclosure by filing for bankruptcy, refinancing or selling the home.
In many other states, which require court action before a foreclosure, court records are a reliable source for foreclosure starts.
But in Georgia, no court or government agency gets involved. The only way to compile foreclosure statistics is to review legal notices in local newspapers advertising foreclosure auctions.
Even Georgia's top banking official has no idea how many foreclosures are pending in the state.
"We don't have an accurate way to gather that information," said banking commissioner Rob Braswell.
How Georgia and metro Atlanta foreclosures compare to the rest of the nation is unclear.
RealtyTrac's 2007 reports have ranked Georgia among the top 10 states for highest rate of foreclosure actions.
The Mortgage Bankers Association's most recent report ranked Georgia in the top 10 for past-due loans and foreclosure actions.
Moody's Economy.com ranked Georgia 21st in the third quarter of 2007 for mortgage loan defaults, placing it below the national average. But Economy.com ranked Georgia in the top five for its rate of mortgages with past-due payments, indicating that a higher rate of defaults may be coming.
RealtyTrac, formed in 1996, is a relative newcomer to the world of real estate statistics. It provides lists of foreclosed properties to consumers who would otherwise have to wade through court documents or newspaper records to find potentially bargain-priced homes.
RealtyTrac's monthly reports, widely cited by news outlets, bring visibility to the company's services and drive traffic to its Web site, where potential home buyers and investors may review local foreclosure listings. The company also offers a subscription service and sells data to investment and financial firms.
The nation's mortgage meltdown has drawn more attention to RealtyTrac's reports than the company ever envisioned.
"If we had known the report was going to get this popular and have this much scrutiny, we probably would have built it with more hard and fast rules in the first place," Sharga said.
Some experts have questioned the company's methods for some time.
After RealtyTrac consistently placed Colorado near the top of its foreclosure rankings, state housing officials started compiling their own data last year. Their tallies were much lower than RealtyTrac's.
"I think the way RealtyTrac presents the data can be very confusing," said Ryan McMaken, who supervises collection of foreclosure data for the state of Colorado.
In Colorado, a lender must file a notice announcing its intent to foreclose and a second document if the sale takes place. Colorado found that RealtyTrac counted both steps as separate foreclosure filings, even if they were tied to the same property.
"They report, in many instances, every formal action on a single property as a new foreclosure — that's double- and triple-counting in many instances," said Duncan, of the Mortgage Bankers Association.
RealtyTrac maintained the numbers were accurate and offered a way to measure every action in the process, but critics said it falsely inflated the numbers.
In response, RealtyTrac recently started offering two figures in some reports: total foreclosure actions and total unique properties involved in foreclosure actions. The change was widely praised.
In Georgia, the company's data issues run beyond the way it tallies the statistics. RealtyTrac reports a total for Georgia but it consistently collects data from only 95 of the state's 159 counties.
The company's database included only one foreclosure record for South Georgia's Jeff Davis County, for example, from January through September.
But the Jeff Davis Ledger published 35 foreclosure notices in that period.
Incomplete coverage is not isolated to Georgia. Sharga said RealtyTrac covers about 2,200 of the nation's 3,141 counties or county equivalents. That includes more than 90 percent of the nation's households, he said.
Even in the counties RealtyTrac covers every month, its numbers appear to be off the mark.
In July, RealtyTrac reported Georgia had 12,602 foreclosure filings. But a review of the company's data, which it provided to the Journal-Constitution, identified more than 2,300 duplicate records, as well as 1,700 bank repossessions that had been completed in previous months.
Lenders are not required to file a deed as soon as they repossess a property.
Sharga, of RealtyTrac, acknowledged the lag. "It's not ideal," he said. "We wish there were a better way to collect the data."