Close Window | Print

 

SFGate

 

June 23, 2008

 

James Temple, Chronicle Staff Writer

 

 

Most foreclosures in last 20 years

 

 

Foreclosures across the state jumped to their highest levels in at least 20 years over the past three months as tens of thousands of Californians lost their homes and more than 100,000 neared the brink.

 

Notices of default, the first step in foreclosure proceedings, rose nearly 125 percent from a year ago during the second quarter, and trustee deeds recorded, which reflect the actual homes repossessed, soared more than 260 percent, according to research firm DataQuick Information Systems.

 

The number of defaults and foreclosures was the highest ever noted in company records, which go back to 1992 and 1988 for those categories, respectively. There were 63,061 foreclosures statewide during the second three months of the year compared to 17,458 during the same period a year ago.

 

In the Bay Area, mortgage companies recorded 18,516 notices of default, up more than 140 percent from a year ago. Foreclosures rose nearly 315 percent to 9,206. As in past quarters, foreclosure activity was concentrated mostly in outlying parts of the region.

 

The one potentially positive sign during the quarter was a slowing in the rate of increase in defaults and foreclosures.

 

"There's still no conclusive evidence that the worst is behind us," said Andrew LePage, an analyst with DataQuick of La Jolla (San Diego County). "There's some evidence that might, emphasis on might, suggest we're approaching a plateau in mortgage defaults."

 

Paperwork blizzard

 

On the other hand, the moderating increases could simply indicate that lenders are overwhelmed with paperwork and taking longer to issue default notices, he said. Or lenders could be more willing to allow short sales - unloading distressed properties for less than the amount owed on the loan - instead of initiating the foreclosure process.

 

The housing market began cooling two years ago but went into deep freeze last summer as weakening prices and rising interests rates on adjustable loans pushed more and more subprime borrowers into default. Credit markets seized up and home values dropped further, leading to additional foreclosures and more price declines, a downward spiral from which the market has yet to break free.

 

Esmael Adibi, director of the Anderson Center for Economic Research at Chapman University in Orange, said foreclosures will continue to climb until at least the third quarter of 2009. He cites two key reasons: rising unemployment rates that will apply pressure even to homeowners who secured prime loans, and the expectation that many borrowers soon will face higher payments on option adjustable-rate mortgages.

 

Such loans allow borrowers to initially pick among payments, including a minimum that doesn't cover interest, but the monthly obligation can jump quickly and substantially once borrowers owe a certain amount above the original loan total.

 

'The double whammy'

 

"This is the double whammy, and it's putting extra pressure on the housing market," Adibi said. "Unfortunately, this is going to be with us for a longer period than most people anticipate."

 

Among homeowners who fall into default, an estimated 22 percent now escape foreclosure by catching up on their payments, refinancing or selling, DataQuick said. That's down from 52 percent a year ago.

 

The growth in foreclosures and defaults indicates lenders aren't doing enough to help borrowers in distress, said Kevin Stein, associate director of the California Reinvestment Coalition, an advocacy group for low-income communities.

 

'Very common outcome'

 

The group's survey of 42 housing counseling agencies in the state published this month found that 68 percent said foreclosures were the "very common outcome," compared with 21.4 percent that said the same of loan modifications, which typically involve lowering interest rates for a set amount of time.

"We need the servicers to take more dramatic action and to get in front of the problem," he said.

 

Michael Tacconi, past president of the California Association of Mortgage Brokers-East Bay Chapter, said that banks and lenders make repeated efforts to contact borrowers, but customers often don't answer or return calls once they find themselves in financial trouble.

 

"The last thing they would want is a foreclosure," he said of lenders.

 

Banks offering workouts can do only so much to stem climbing foreclosures, said Michael Carney, director of the Real Estate Research Council of Northern California. That's because plummeting home values often mean borrowers owe much more on their loans then their property is worth, an issue that interest rates can't address.

 

"The ethical thing to do is to keep paying on the loan, but the rational thing, if it doesn't look like your head will be above water soon ... is to default," he said.

Securing a workout also is usually a complicated process, requiring the sign off of several unrelated parties, as the case of Merlyn and Carlos Amaya demonstrates. They secured a so-called 80-20 loan, in which two lenders issue mortgages for the total price in those percentages, for a three-bedroom home in San Lorenzo during the summer of 2006.

 

Work hard to find

 

As the slowing economy made it more difficult for Carlos Amaya to find regular work as a truck driver, the Amayas fell behind on their payments. Their primary lender issued a notice of default but ultimately modified the mortgage after Merlyn Amaya, a nanny, went to nonprofit ACORN Housing for help.

 

The couple remains several payments behind with Franklin Credit, which controls the second loan. Representatives of the company have called several times, refused to alter the terms of the loan and threatened to begin foreclosure proceedings, she said.

 

"It's my house, my kids live there," said Amaya, a mother of three, including an 11-year-old autistic boy. "I don't want to leave the house, I love my house, and I'm trying to coordinate with them. Everything is refused when I call."

 

Franklin Credit didn't respond to inquires from The Chronicle.

 

Your neighborhood: To look up foreclosed properties in your area or to see how many homes in your ZIP code have been affected, go to sfgate.com/webdb/foreclosures.

 

E-mail James Temple at jtemple@sfchronicle.com.

 

This article appeared on page A - 1 of the San Francisco Chronicle