Florida foreclosures remain at high level

There is a law school urban legend (which may be true at some schools) that, during orientation, students are told, look to your left, look to your right, one of you will fail and won't make it through the semester. Looking at recent data concerning foreclosures, I can't help but think that the same visual applies in many neighborhoods in Miami-Dade and Broward County.

In a recent report by RealtyTrac, it was reported that Florida retains one of the highest foreclosure rates in the nation. This is hardly news as it has been reported in numerous forms. But the newly released data is still troubling. The Miami-Fort Lauderdale area ranked 14th nationally, with one in every 28 homes -- 3.54 percent -- in foreclosure. Florida's west coast, one of the most hard hit areas, is faring even worse. One in every 14 homes, or 7.2 percent of total housing units, was in some stage of the foreclosure process in the Cape Coral area.

This data was published almost simultaneously with President Obama's report that the economy has stabilized. This might be the case, but even Obama admitted that it would take a while for the economic recovery (which has yet to happen) to filter down to the individual level.

Avoid foreclosure? Move into a smaller house

In what appears to be a not so novel idea, Professor Michael Zelin of Kent State University posed the following as a method to avoid the foreclosure crisis: trade down. Literally.

Zelin's theory is that borrowers who cannot afford their payments move into a smaller home owned by, you guessed it, another borrower who cannot afford the payments, who then, you get the idea. This seems almost a reverse pyramid, but, as Zelin puts it, this is what people are doing anyway in this current climate. Just not in this orderly fashion. Most people who lose their homes to foreclosure either rent a smaller place or move in with family and friends. Trading rent for a mortgage payment is simply a means of paying less per month. If Zelin's idea takes off (and its hard to imagine the bank's endorsing this or assisting with the procedure of moving homeowners in an orderly fashion), homeowners are trading a too high payment for one that is within their budget.

It is estimated that there will be 3 million foreclosures nationwide. Buying a house will not be an option for any of them with their post foreclosure credit scores. Most will live with family and friends. Some will be able to rent. But many will be what is being referred to as the "floating homeless". The banks, in their slower than molasses approach to loan modification, aren't doing enough to reduce these numbers. Perhaps its time to start thinking outside the box.