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RealtyTrac published its Q3 2007 foreclosure statistics today and the data paints an interesting picture about the nature of home loan defaults.

Of the Top 10 MSAs in terms of Foreclosures Per Household, eight represent areas in which real estate speculation was rampant in 2002-2006, and two represent areas whose local economies have been decimated by job loss.

In other words, when it comes to mortgage defaults, sub-prime loans may be a symptom, but they're certainly not the cause.

If sub-prime mortgages caused foreclosure, we would expect that the state securitizing the most sub-prime loans in 2005 would be at least represented near the top of RealtyTrac's list of MSA Foreclosures Per Household. 

Instead, just one Rhode Island city ranked (#82).  Of the #3 sub-prime state (Mississippi), no cities were represented in the Top 100.

Instead, the Top 10 list includes cities like Stockton (which we've highlighted before) and Cleveland.

1. Stockton, CA (1 per 31 households)
2. Detroit, MI (1 per 33 households)
3. Riverside/San Bernardino, CA (1 per 43 households)
4. Fort Lauderdale, FL (1 per 48 households)
5. Las Vegas, NV (1 per 48 households)
6. Sacramento, CA (1 per 48 households)
7. Cleveland, OH (1 per 57 households)
8. Miami, FL (1 per 60 households)
9. Bakersfield, CA (1 per 64 households)
10. Oakland, CA (1 per 71 households)

This data helps to reinforce two ideas.

1. Too much real estate speculation in a given area may subject that region to an excess of foreclosures in the future.  Real estate investors can watch for this pattern and adjust their investment decisions accordingly.
2. If you lose your job, you may lose the means to pay bills.  Therefore, be sure that you are proactive about creating emergency savings.  Banks don't care how much equity you have in your home -- they only care that you make monthly interest payments.

And, lastly -- one last theory to toss out there for home buyers in "rapidly growing" areas.  That small tax bill won't last forever and when it adjusts higher, it may just push your budget into the red.  That is a leading cause of foreclosure, too.

Dan Green is an active loan officer. Email or call 513-443-2020. Dan is on Twitter at @mortgagereports.