San Diego Housing Bubble News and Analysis

HOUSING: No sign of foreclosures slowing,

By ZACH FOX - zfox [at] nctimes [dot] com | Thursday, May 14, 2009 12:35 PM PDT

Foreclosures won't be going away anytime soon.

A report released Thursday said mortgage delinquency rates in the region shot up in March ---- a sign that foreclosure rates will continue to approach record levels over the next six months, at least.

Further, the actual foreclosure rate did not increase proportionately with the increased number of borrowers who were late on their payments, creating a backlog of probable foreclosures.

Delinquency rates in the Riverside-San Bernardino metro area hit a staggering 15.7 percent ---- meaning borrowers on roughly one out of every six mortgages were at least 90 days late on their payments, according to the report by First American CoreLogic, a Santa Ana research firm.

In San Diego County, 7.2 percent of all borrowers, roughly one of every 14 mortgages, were behind on their payments.

Meanwhile, the portion of mortgages in some stage of foreclosure was 4.1 percent in Riverside-San Bernardino counties and 1.9 percent in San Diego County.

The ballooning delinquency rolls cast a pall over a resurgent housing market where affordable homes have spurred a boom in homebuying.

And Mark Goldman, a mortgage broker and lecturer at San Diego State University, thinks foreclosure rates will only grow over the near-term.

He said prices are still falling and "couple that with reduced employment, reduced household income; I mean, what magic is going to keep people in their homes?"

Foreclosures often act as a self-reinforcing cycle for price declines: Many analysts believe a drop in value causes more foreclosures. Then, foreclosures add to inventory, while desperate banks willing to slash prices put downward pressure on overall prices.

Those price declines cause more foreclosures, as people walk away from homes that are worth less than their mortgage amount.

Despite a 40 percent increase in sales in North County during the first quarter of the year, foreclosures still tower over those numbers.

With one step forward in sales, new foreclosures move the market two steps back: For every home sold in that first quarter, two other homes entered foreclosure, according to data from the North San Diego County Association of Realtors and ForeclosureRadar.

Those numbers are identical in Southwest Riverside County.

At the same time, the number of finalized foreclosures has slowed ---- but that's not necessarily a good thing. Some analysts think it is only a delay of the inevitable rather than the result of loan modifications that lower mortgage payments and prevent foreclosure.

Though bank seizures have slowed, new foreclosures, also known as notices of default, have approached record highs for this recession.

So the number of foreclosure notices that will probably turn into bank-owned scourges were among the highest in April, with 1,304 in North County and 1,366 in Southwest Riverside County, according to ForeclosureRadar, a research firm in Northern California. And those numbers are probably on the low side in predicting the number of foreclosures through 2009 because of the glut of delinquent mortgages not in foreclosure.

Another cause for concern is an impending crush of mortgage payment adjustments. Hundreds of thousands of California home loans carried payments that were ultra-low for the first two or three years and then ballooned upward.

As of March, there were about 220,000 mortgages across the state that will see such adjustments over the next few years, according to data from the Federal Reserve, the nation's central bank.

Generally, these payment increases have already devastated "subprime" loans ---- products given to lower-income or riskier borrowers. Most of the upcoming resets ---- roughly 177,000 of them ---- will hit "Alt-A" loans, typically given to higher-income borrowers who purchased multiple properties or used "stated income," meaning they wrote down an income rather than provide a pay stub.

One of those borrowers is Diane Goodwin of Oceanside. She purchased four investment properties. Including her own house, she has five "Alt-A" loans.

Three of the loans have been modified. One was a permanent modification she said she can pay over the life of the loan. The other two have reduced payments over the next five years and then adjust to payments Goodwin said she won't be able to afford.

"We have to deal with it in five years, but it at least gives us five years," she said.

Contact Zach Fox at 760-740-5412. Read his blogs at bizblogs.nctimes.com.