Foreclosures and default notices skyrocketed to record peaks in California and the Bay Area in the fourth quarter of 2007, according to a report released Tuesday. The information was a fresh reminder that the slumping real estate market is continuing to have a serious impact on homeowners, particularly those with risky subprime mortgages.
Lenders repossessed 31,676 residences in California in the October-November-December period, according to DataQuick Information Systems, a La Jolla research firm. That was a dramatic 421.2 percent increase from 6,078 in the year-ago quarter.
In the Bay Area, foreclosures rose an equally stunning 482.5 percent to 4,573 in the fourth quarter, compared with 785 a year ago. Contra Costa County, with 1,558 foreclosures, up 533.3 percent from a year ago, had the most, followed by Alameda County with 1,026 (a 514.4 percent increase) and Solano County with 704 (up 528.6 percent).
“Foreclosure activity is closely tied to a decline in home values,” DataQuick President Marshall Prentice said in a statement. “With today’s depreciation, an increasing number of homeowners find themselves owing more on a property than its market value, setting the stage for default if there is mortgage payment shock, a job loss or the owner needs to move.”
It ain’t over yet on the foreclosure side. Back track 3 years and back track 5 years because that is when ARM balloon loans go up, 2006 was the cusp.
However, from the east coast experience, I’ll predict Bay area will see an odd stabilization. I’ll bet those who purchased the loans will be very willing to work something out as the crisis reached levels they are actually feeling it. The government has already placed a “life boat” package which will help the mid-range and top end but our low end is in the dumps. Fed has already done away with the “no document” loan. Yet the bottom end of starter homes, condos and townhomes will probably continue to take hits for at least two years as the surplus will continue remain.
This is the time to jump on in if you can get the funding, I got a flyer in the grocery store parking lot “We buy houses, we rent houses, we have rent to own packages.” So the shrewd entrepreneur can make a killing if capital can be tied up and invested wisely (in areas that’ll bounce back instead of merely being a slumlord).
Lest anyone think this applies primarily to the Bay Area: It is happening all over the state, and I have seen it in Los Banos, in Merced County, where my wife and I live. Some lenders are now resorting to foreclosure auctions here and in several other cities and towns. Whether or not the .75% drop in the prime rate might have an impact on this situation is debatable, since I think it’s too early to tell.
Re #2: …and not just in California. Foreclosures in Williamson County, Texas, just north of Austin, were up by 98% in December 2007 over December 2006.
I would – one time and one time only – have banks allow people (homeowners) to refinance home equity loans and base loans (all property loans) into one loan with a 50 year term. The terms of this loan would be such that as long as it is outstanding there could be NO additional loans against the property – Period/for any reason. The longer term would make up for a lot of the increases in interest rates (all? for most people). Since the average person stays in their home 7 years – this would spread out the carnage and allow the market to work it all thru more reasonably. Because of the way loans are resold this would take some federal action.
Examine these reports VERY carefully, as there is a huge amount of misinformation coming forth as “news”. The mass media continues to conflate several different financial problem areas into “the subprime crisis”. But a recent study of subprime defaults found that over 50% were defaulting less than two years into the loan. That means that the borrowers could not even pay their initial payment (on a 2/28) BEFORE any adjustments took place. (I recently noted that 5 of 6 foreclosure notices in our Bay Area newspaper were less than 2 years into their loan. Unless there were job losses, medical expenses, etc. those borrowers cannot blame anyone but themselves, as the payments for the first two years (at least) were fully disclosed and known by the borrower.
It all depends on where you sit. I just got off the phone with my mortgage guy and he says we can considerably lower our monthly payment (current mortgage is from April 07) if we refinance now. Which is good news becuase the current loan was set to adjust upwards in just a few months….