Homeowner default notices jump 123%
County foreclosures surge, information service says
California's slow housing market turned down a bleak path during the first quarter as thousands of homeowners fell months behind in their mortgage payments, leading to a surge of default notices.
Lending institutions filed 46,760 defaults, the most in almost 10 years. The news was coupled by a wave of foreclosures statewide.
In Ventura County, notices of default on houses and condominiums jumped to 965 in the first quarter, up 123 percent from 433 in the same period last year, DataQuick Information Systems reported Monday.
The La Jolla-based real estate information service blamed the increase on flat appreciation, slow sales and the terms of teaser-rate mortgages being reset at a higher interest rate.
The number of default notices sent to California homeowners last quarter increased to 46,760 for the January-to-March period, up 148 percent from 18,856 last year. The notices serve as the first step in a lengthy process toward foreclosure.
In recent years while the market was hot, Ventura County homeowners were largely able to avoid foreclosure by selling their homes, paying off their mortgages and still making a profit. That no longer seems to be the case for some people.
There were 203 foreclosures in Ventura County during the first quarter, up from 17 filed over the same period last year, which was considered a "rock bottom level," said DataQuick spokesman Andrew LePage. The year-over-year leap was a drastic 1,094 percent.
'A perfect storm is brewing'
Since 1988, Ventura County's quarterly average has been 124 foreclosures. Foreclosures peaked at 330 during the third quarter of 1996, and hit an all-time low of six in the third quarter of 2004, LePage said.
Statewide, the loss of homes to foreclosure totaled 11,033 during the first quarter, up 81.5 percent from 6,078 for the previous quarter and 802.1 percent from 1,223 for the first quarter last year.
DataQuick reported that many of the loans that went into default last quarter were originated between April 2005 and May 2006, with a median age of 15 months. Adjustable-rate mortgage use for primary purchase home loans peaked at 77.8 percent in May 2005 but has dropped since.
On primary mortgages, homeowners were a median five months behind on their payments when the lenders started the default processes. The borrowers owed a median $10,784 on a median $331,200 mortgage.
Mortgage broker Mike Anderson is seeing a noticeable increase in foreclosures and is forecasting a major jump soon.
"A perfect storm is brewing, and most people don't even know it," said Anderson, a partner of Ventura County Home Loans in Ventura. "A lot of people are on the cusp of looking at foreclosure."
Some borrowers might not be fully informed or aware of their types of loans, one of which could be an adjustable rate mortgage that is about to increase.
A very different climate
What's driving the increase of foreclosures? Some experts say they don't know. Anderson says the changing of subprime guidelines and the terms of many adjustable rate mortgages increasing are some of the factors.
"More than likely, a large portion of these are going to be foreclosed on. That's when there's going to be blood on the streets, hypothetically," Anderson said. "As early as six months ago, you could do 100 percent financing for the stated borrower with a 600 credit (FICO) score."
It's a different story today. With subprime banks defaulting on these payments and sometimes filing bankruptcy, lenders are cautiously requiring a minimum credit score of 670, and a down payment on the property. This makes it nearly impossible to refinance for a homeowner whose property lost value, and now has more to pay the bank than what was originally owed.
"The market is having a long overdue correction in terms of saying yes to loans," Anderson said.
Many worry the current housing cycle will replicate the housing market's crash in the 1990s, but it's a very different climate, said Bill Watkins, director of the UC Santa Barbara Economic Forecast Project.
"Right now, the economy is doing rather well," Watkins said. "The people who are losing their homes are not typically people who have lost their jobs, but because they've had to deal with the structure of the loan" and don't have enough equity to sell or refinance.
For some, the best option could be to sell, but if the homeowner does not have any equity or savings, the most rational and easy choice could be to simply walk away, and let the house go to the bank, Watkins said.
Buyers hoping to get a good deal on foreclosed homes will likely be disappointed. Home values have not yet been effected by rising defaults, Watkins said.
'Still a lot of demand'
Mark Asai, a real estate foreclosure consultant at Century 21 Rolling Oaks in Thousand Oaks, said a buyer might save from 3 percent to 5 percent off a foreclosed home, but that's it.
"The quantity of foreclosures are very small, and we're in a more affluent area where there's still a lot of demand and not much housing relative to people who want to buy a home," Asai said.
In response to the rising default notices in Ventura County, this month Troop Real Estate Inc. formed Troop Solutions, a subsidiary corporation to assist homeowners who are approaching or are in preforeclosure. Preforeclosure is the period of time before a property goes to public sale.
"What we try to do is identify the rights and obligations of the homeowners and develop strategies and solutions that help them keep their property," said Paul E. Stansen, real estate broker and attorney leading the efforts at Troop Solutions. "In a nutshell, we work to protect homeowners' equity and credit."
He has a large and growing list of potential clients. Receiving counseling isn't cheap. Stansen charges $250 an hour while he sifts through loan documents with a client and tries to find a possible solution, such as a mortgage modification, which might mean extending the term of the loan.
It typically takes from two to three hours to get through the conversation and analyze a 200- to 300-page loan document.
"What we're trying to find out is what's unique about their loan, if there's a prepayment penalty, if there's a rate adjustment, and what they can do to rectify that," Stansen said.
http://www.venturacountystar.com/news/2007/apr/17/homeowner-default-notices-jump-123/
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