Cape Ann has so far been insulated from a statewide spike in residential foreclosure attempts caused primarily by home loans that ask for little or nothing down on a property and do not begin paying on the principal for several years.

In all of Massachusetts, the number of petitions filed in Land Court to foreclose residential mortgages in the first six months of 2007, when compared to the same time period last year, jumped 66.5 percent, from 7,777 last year to 12,945 this year, according to a recent study from the Warren Group.

Essex County saw an increase of 74.5 percent, from 933 last year to 1,628 this year, according to the study.

Cape Ann communities have fared much better, with only Rockport seeing a significant increase in foreclosure petitions. Essex had one more petition this year over last year, and Gloucester had three more. Manchester held steady at seven. Rockport jumped from 21 petitions last year to 54 this year.

Between 1999 and 2005, housing prices effectively doubled in Massachusetts, though because there was no corresponding increase in income here, people had to borrow more and more, said Alan Pasnick, a data analyst with the Warren Group in Boston.

"People were getting into a buying frenzy because they thought they had to get in while they could still afford it," Pasnik said. "You squeeze every bit of credit out of the lending system. People and lenders started doing crazier things."

The Warren Group, which released a study this month on Massachusetts foreclosures, collects real estate and other financial data, publishes two weekly industry newspapers and is affiliated with a number of builders and bankers groups in the Northeast.

Subprime loans, which are typically targeted at hopeful homeowners with weaker credit ratings, have monthly payments that increase after the first two or three years, during which time the installments are applied only to the loan's interest.

Local lenders said Cape Ann banks typically don't make subprime loans - money loaned out at rates lower than average. Those loans have played a large part in the increase of foreclosures.

"We've always been a conservative lender," said Robert Gillis, vice president of Cape Ann Savings Bank. "And I think the other local banks, they're pretty much the same way. I don't think they're suffering from (a spike in) foreclosures."

Pasnik said the Warren Group study is only a partial picture as the group works on ways to count other circumstances he termed as "forced sales," where the homeowner cannot meet payments and finds a way to work with his or her lender to get out of the loan short of foreclosure.

Many prospective homeowners either with a tarnished credit history or who try to buy more expensive homes than they can afford have been seduced by loans that offer low monthly payments for the first two or three years, with all the money going toward interest, and less than the historic standard of 20 percent down. Many of those loans ask for no down payment.

Once that two- or three-year period is over, monthly payments increase to include some of the loan's principal. The loans also have adjustable rates, meaning the interest rate can increase over time.

Mortgage companies and large national banks have been bundling these mortgages together and selling them to investors, looking for a return on the high interest charged in the loans. The higher the risk, the higher the return to investors.

"All this works fine as long as the housing market is going up," Pasnik said. "Lenders are covered because it's easier for them to sell at a price to cover the loan. It's good for borrowers, too, because when the rates kick up, they can refinance because the value of the house went up."

As homes began sitting for sale longer and prices stopped increasing, homeowners are finding they cannot refinance to keep payments low and lenders are stuck with houses on the market. Because banks do not want to be direct owners and sellers, they tend to sell at lower prices to rid themselves of the properties.

The national adjustment in the home credit market has led many lenders to tighten their restrictions and the subprime market has dried up significantly. Many borrowers who had been able to get subprime loans now find themselves shut out of the housing market.

"I've talked to a couple people who got into bad loans and never should have got them in the first place," said Marianne Curry, a loan officer at Rockport National Bank. "And in a down market, selling is an awfully hard thing to do to get out of a loan."

Pasnik and Gillis agreed the combination of a smaller pool of lenders, more foreclosed houses up for sale by banks who do not want to be property owners, and a housing market that has been softening for the last 18 to 24 months has slowed the home market.

"There's going to be an adjustment, a correction in price and a correction in the behavior of lenders," Pasnik said.

But neither believes there is evidence pointing to a collapse in the market.

"Property values have dropped about 10 percent in the area in the last couple of years and maybe that's not a good thing, but I was around in the late 1980s and early 1990s when prices dropped a third," said Gillis. "It's all relative. I don't see this as being catastrophic."

Local real estate agents have said they believe the housing market will turn around again in a year or two.

A look at the numbers

Foreclosure petitions, the first step in the foreclosure process, are up around the state, but Cape Ann has generally withstood the waves.

#Petitions filed January through June 2006#Petitions filed January through June 2007# percent change

Gloucester#37#40#8.11 percent

Rockport#21#54#157.1 percent

Manchester#7#7#0 percent

Essex#4#5#25 percent

Essex County#933#1,628#74.49 percent

Massachusetts#7,777#12,945#66.45 percent