City sees 79% foreclosure spike.

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The latest report released by the city's Economic Development Corporation has shed new light on New York's bleak subprime situation, revealing that long before last year's rumblings of a weakening market were felt, the 'perfect storm'--as so many industry analysts have coined it--brewed quietly in the mortgage market.

According to figures from NYU's Furman Center for Real Estate and Urban Policy, the city experienced approximately 6,000 foreclosures in 1999.

By 2007, that number swelled to nearly 15,000, with two-to-four family buildings hit hardest. Of last year's foreclosures, two-to-four family buildings accounted for close to 8,000; single-family homes accounted for 5,000; and less than 2,000 foreclosures were tallied for buildings consisting of five-plus units or mixed-use residences.

While the biggest jump in New York City foreclosures came between 2005 and 2006, the stage was set for disaster as early as 1999.

According to the EDC, the number of subprime loans in the city increased by an astounding 581% between 1999 and 2006. While just 4% of home loans were subprime in 1999, the "risky" mortgages accounted for 20% of all city home loans by 2006. While there were less than 5,000 such loans in the city prior to 2002, the number of subprime mortgages peaked at more than 18,000 in 2005.

The dramatic declines in average interest rates resulted in the increasing popularity of shoddy lending practices, as lending institutions dolled out loans even to those with poor credit. This set some borrowers up for failure, since rates of subprime loans sharply rise after the initial period of low interest. And now foreclosures are commonplace throughout the city, primarily in the boroughs. From 2005 to 2007, according to the EDC, the city's number of foreclosures grew by 79%.

Rising rates for subprime borrowers, coupled with declining home values in some of New York's neighborhoods, precipitated a challenging environment for homeowners. Many city borrowers could not meet the demands of higher mortgage payments, but declining home values prevented them from refinancing as well.

Also problematic, the average value of subprime loans outpaced the value of regular loans between 1999 and 2003, the report states. By 2003 the average subprime loan amounts climbed to nearly $300,000--a hare above the average regular loan amounts in the city. And subprime loans eventually reached $300,000, on average, by 2006.

But one doesn't need to ask a broker or appraiser about the adverse impact foreclosures is having on the New York City market: the EDC's report shows that from March-June of 2008, just 794 residential buildings are under construction in the city--a 51% decrease from residential construction activity in spring of 2007. And the city's overall building construction is down 45% from this time last year.