The number of foreclosure actions in Spokane County rose 1 percent in 2002 to 1,153, but economic observers say the small increase is a sign of stabilization after eight years of substantial increases.


Full-year figures werent available for foreclosures in Kootenai County, but the 514 recorded there through September were lower than the 616 posted in the year-earlier period, according to the fall 2002 Real Estate Report, a semiannual book of real estate research for Spokane and Kootenai Counties published by the Spokane-Kootenai Real Estate Research Committee.


The Spokane County auditors figures of 1,153 foreclosures on deeds of trust here last year broke the record of 1,110, set in 2001. The increase of 43 foreclosures is smaller, however, than the annual jumps each year since the mid-1990s, when foreclosures grew by 150 to 200 each year. Kootenai County peaked at 781 foreclosures in 2001.


Its still growing (in Spokane County), but these numbers are not dramatically higher, says Randy Barcus, chairman of the Real Estate Research Committee. Still, only a decade ago, the county recorded just 70 foreclosures.


Phil Kuharski, a longtime observer of Spokanes economy, calls the much higher level a troubling sign.


Despite the fact that mortgage rates are low, housing starts are good, and sales were good in 2002, we still have this nagging problem, he says.


The Real Estate Research Committee has linked high rates of foreclosures with the increasing popularity of subprime lending, or loans to borrowers who have low credit ratings or high debt-to-income ratios. Subprime lenders often charge borrowers high interest rates and high upfront fees, the Real Estate Research Committee says in its fall 2002 report. The number of subprime lenders operating in Washington state rose sharply between 1993 and 1998, the committees spring 2002 report says. During that same period, the number of subprime home loans statewide grew to 207,000 in 1998 from 24,000 in 1993, the report says. Meanwhile, conventional home loans increased only 41 percent between those years, the report says.


In recent years, homeowners have been getting behind in their loans and having their homes foreclosed on more quickly. In 2000, loans on foreclosed homes took an average of about 65 months to fail, down from more than 70 months in 1993, according to a study by Spokane Neighborhood Action Programs that the Real Estate Research Committee cited.


Barcus says a lot of subprime lending occurred during the late 1990s, when the economy was strong, and he believes that the days of 125 percent home loans have run their course.


The loose money for those kinds of things has tightened back up again, he says. People loan money when the economy is rolling along pretty good. When the economy tightens up, lenders go other places.


Barcus says great similarities exist between recent foreclosure figures in Spokane County and those experienced here during the late 1980s, during another economic downturn. A lot of lenders offered subprime home loans then, he says, and foreclosures in Spokane County climbed as high as 853 in 1988.


What we see in these business cycles, like we did in the 1987-to-1988 period, are bankers with lots of money to lend and customers expecting that their jobs will last forever, Barcus says. When credit is easy and jobs shrink, like they have in our community, people cant make their payments, and some of them opt for foreclosure.


Barcus doesnt think defaulting on a home loan carries with it any less of a societal stigma today than it has in the past. He calls it junk science to think that such a mindset would have increased the foreclosure rate.


Barcus predicts that the number of foreclosures in Spokane County will drop this year as the economy improves. He says hes encouraged by a recent report from Arizona State Universitys College of Business, which ranked Spokane 235 out of 292 U.S. cities in job growth. Spokane normally falls in the 280s, he says, but has turned the corner, he contends. Also about to turn the corner, he asserts, is the foreclosure rate.


Its important to keep these things in perspective, Barcus says. Yes, these numbers are larger than theyve been, but on a proportionate basis, theyre similar to the last downturn in the late 1980s.


Just as the economy and foreclosure rates improved then, he expects to see the same occur soon in Spokane.