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and they still think were headed for a "softlanding"????
October 20, 2006 California mortgage default rate soars Los Angeles Times
The number of Californians who are significantly behind on their mortgage payments and at risk of losing their homes to foreclosure more than doubled in the three months ending Sept. 30, providing the latest evidence of trouble in the housing market, figures released Wednesday show.
Lenders sent out 26,705 default notices — the first step toward a foreclosure — during the July to September period, up from 12,606 during the same months last year, according to DataQuick Information Systems.
Defaults are still well below their peak level of 59,897 that came in the first three months of 1996, as the state's last housing slowdown was nearing its end.
But the report shows that the state's slumping housing market is taking a toll on more homeowners — especially those with mortgages that offer low initial payments at the cost of higher bills down the road.
"We were putting buyers in homes with loans they could not afford to sustain over the long haul," said Bob Casagrand a San Diego real estate agent. "If you're a marginal buyer with an adjustable mortgage, you're rolling the dice on the future."
Advertisement Foreclosures are rare when the housing market is strong and prices are rising. In those conditions, borrowers can usually sell their home quickly, or they have enough equity to allow them to refinance their loan. But in another disquieting sign, DataQuick reported that 19 percent of the owners who went into default earlier in the year actually lost their homes to foreclosure in the third quarter, more than triple the 6 percent in 2005.
Mortgage payments are such a big part of the household budget for many Californians that it only takes a little trouble to fall behind. For Stacey and Mike Broussard, all it took was an exceptionally rainy spring.
That meant Mike Broussard was laid-off from his job as a heavy equipment operator.
"I tried to juggle things around — we were eating a lot of peanut butter and a lot of beans — but it got out of control," said Stacey Broussard, 39.
She was in charge of the bills, and each month would pay what she could of the $1,300 the lender expected for the mortgage on their home in Antioch, east of San Francisco.
At the end of August, she said she tried to make another partial payment, but the lender told her that anything less than a full payment would lead to a default.
One day her husband said she had a notice from the Post Office to pick up a special letter. She knew what it was, but he didn't. "I was trying to fix it before I told him," she said. "That was the worst moment."
Mike Broussard is now employed again, and the couple — who are lucky enough to have equity in their home — are now working with TerraCotta Group, a Manhattan Beach real estate and mortgage company that specializes in helping delinquent homeowners get out of default.
When she started the company 2 1/2 years ago, company president Tingting Zhang said two or three people would come through her door on a typical day looking for help. Now it's 30 to 40.
"And we haven't reached the peak yet," said Zhang, who worries that the combination of rising interest rates and high-risk mortgages could spell defeat for a rising number of borrowers.
Just this week morning, Zhang dealt with a Lancaster resident who'd taken out a $310,000 adjustable-rate mortgage with a starter interest rate of 5.4 percent and a monthly payment of $1.050.
In July, the interest rate climbed to 8.5 percent and the monthly payment jumped to $2,306. A year-end adjustment will send the monthly payment to $2,744.
"The borrower is totally unprepared for this rate adjustment," Zhang said.
The fallout is starting to show up in the workload at credit counseling outfits.
Gary Aguilar, counseling manager for Springboard, a nonprofit credit counseling agency in Riverside, said the amount of mortgage-related work he and his staff are doing has "pretty much tripled this year."
The softening of the housing market was the trigger, as new homeowners with little or no equity in their properties found themselves unable to sell at a high enough price to pay off the balance of the loan and still cover all of the sale expenses.
"Whereas a year ago people could have put their house on the market and sold their way out of the problem, now they're stuck with the house," said Richard Pittman, housing services coordinator for credit counselor ByDesign Financial Solutions in Los Angeles.
"I've talked to two in the last week who thought they had a done deal and when it came to putting the loan together, they came up short" and their house went to auction, he said.
More than half of the loans that went into default in the third quarter were made last year, DataQuick said. The homeowners were a median of five months behind on their payments when they entered the foreclosure process (meaning half were more than five months behind and half were less than five months behind).
The median delinquent debt was $9,829 on a $306,000 mortgage.
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The housing market in San Diego County peaked earlier than the rest of California, so it's not surprising that default notices rose particularly quickly there. They climbed 160% in the quarter, more than twice the pace in Los Angeles County.
"In the vast majority of cases, the default notices are falling disproportionately on the entry-level market," said John Hokkanen, a San Diego agent. "These are people who don't have any reserves in a time of crisis."
Foreclosures can also weaken housing values further as lenders put the foreclosed homes on the market, often at reduced prices in hopes of a quick sale.
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But while experts believe the default and foreclosure numbers will continue to grow, few see them accompanying a painful housing collapse as occurred in the early 1990s.
"I don't think it's time to panic," said Christopher Cagan, an analyst with First American Real Estate Solutions in Santa Ana. "People have gotten so used to sellers able to command whatever they want on whatever terms they want. That's no longer the case. This is a natural turning of the business cycle."
DataQuick analyst John Karevoll concurred.
"We're still seeing foreclosure activity below an average of the last 19 years," he said. "I'm not convinced the numbers are going to continue going up at this rate, unless something major happens to the economy."
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